Shadow Banking

Dr Doom says quantitative easing will create zombie banks, firms and borrowers

Nouriel Roubini said at Davos that central bankers risked saddling the economy with debt-burdened QE addicts

Nouriel Roubini, the economist dubbed “Dr Doom” for predicting the credit crunch, has sounded a stark warning about the long-term effects of relying on quantitative easing to keep crisis-hit western economies afloat.

At a lively debate in Davos, Roubini, who runs a New York-based consultancy, said central bankers risked saddling the economy with debt-burdened banks, businesses and consumers that should have been allowed to go bust.

“Over time, you get zombie banking, zombie corporates, zombie households, which is damaging in the long term,” he said. The phrase “zombie banks” was coined in Japan, to describe insolvent lenders propped up by cheap cash.

Roubini stressed that “QE” had been critical in fending off a new Great Depression after the collapse of Lehman Brothers in 2008. But, asked to argue against the motion, “The short-term benefits of QE outweigh the long term risks,” he offered nine reasons why such unconventional monetary policy could damage the economy in the longer term.

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