If the zombie hates modern money, he should dig up adam smith and gnaw on the bones

The theory that markets and people can run efficiently does not work in practical application. Wealth is consolidated without merit or work, irrational behaviors like fear and anger dominates with false information, and human beings in our singular ego are more often shortsighted than God's perfect creature that we profess to be.

I would go further, Civilization is an illusion made of altruistic ideals that few if any can ever live up to.

Economics has been called the dismal science since the 19th century.   And for good reasons.  

The Great Recession was a depression for many and recovery has been haphazard at best with everyone except the rich (e.g. the 1 percent)  not really recovered to pre-recession levels.  

College graduates this year face fewer job prospects than last year and this is not progress.  Especially with most students leaving school with substantial student loans hanging like a grist stone around their neck.  

Economists, politicians, accountants, bankers, private equity funds and lawyers; the bane of the modern world.   

Microfinance all the way!!

Okay, let me explain how it happens....  (I was working in the bank, and have a finance degree currently not being used...)

Banks themselves are not lending the money to each others, because even among themselves don't trust each other; therefore there is no money to lend out to consumers and businesses.  When I was working in the bank, I noticed many people who wanted home loans couldn't get them because the banks (not just the bank I worked in, our lending policy was a reflection of the overall climate).  So why am I bringing this subject up (and I am glad you brought it up)?  Well, this type of lending policy where only the richest can qualify for the loan will create a big gap between rich and poor.

And I don't condone the QE's Bernanke was doing.  Absolutely disaster, IMHO.  Printing money will only cause inflation, which devalues money and causes prices on consumers goods to go up (causes big gap between rich and poor again, because poor will rely on credit cards even more, which further getting them into debts).  NOT only that, riches will go for their traditional inflation shelters, guess what?  Gold and real estate.  See the pattern?  It will multiply the gap between rich and poor even more.  I don't know what kind of revolution we are going to see this time (a history lesson, the rise of Communism was partly due to the gap between the rich and poor, the bourgeois and proletariat), but all I know is the clash between rich and poor would be even worse than Occupy Wall Street, if this continue to do so.  Obviously I don't condone the policy of our current Fed Chairman (And former Chairman Alan Greenspan already protested QE's as "highly experimental").

Fortunately, as gold price continues to fall, at least it's a signal that economy is on the right track (I will spare you the reasoning how gold is an indicator of that).

The very very last thing I want to bring up, which is the MOST important sentence of my post is this, if politicians still believe in Adam Smith in his An Inquiry into Nature and Causes of Wealth of Nations (AKA, Wealth of Nations), they should know the job of a government is to create jobs for the people.  When I was still in business school, one of the things that made me deep in thought was, how much does politics add to the bottom line of a business?  (that's a rhetorical question)  So doesn't matter it's government or a business, shape it up or lose out.  Stop pointless politics (and our current economic state is partly due to politics, btw), because people are suffering.  Don't ever forget what Thoreau said in his Civil Disobedient.

I don't know how it works in the US, Ashi, but in the UK the govt prints the money and hands it over to the Bank of England. The BoE then provides this money to the big five clearing banks at - currently - the lowest interest rates we've ever seen so those banks can then lend that money to businesses, at attractively low rates - with a reasonable "turn" based on properly assessed risk.

Couple of points, banks seem to have lost the skill of how to properly understand their business customers and appropriately assess their customers' individual business risk so that business can get the money they need to invest and grow the economy. Instead, what they are doing is offering extortionate rates despite historic record low rates from the BoE and not properly assessing individual risk - so businesses say "no thanks" and scrap their investment plans - or refusing to lend at all.

Worse, the govt has now decided to get involved with underwriting risk to get lending kickstarted .... but ... they've decided to underwrite risk in the mortgage market not business lending. This is absolutely crazy. All it's going to do is fuel house price inflation [and maybe stimulate the building trade], saddle the taxpayer with yet more mortgage risk - as if we haven't got enough already - and produce illusory growth based on increasing property prices ... one of the causes of the mess we're now in! Meanwhile manufacturing remains the economy's Cinderella, when it should be the engine room *oops, mixing metaphors again *

As for banks just lending to each other ... well that doesn't help anyone, except the banks themselves. We used to have a network of small regional banks who took deposits from their local community and lent out to their local community - but they were all gobbled up by the big banks in the 80s and 90s. Imho we need to bring back those small regional banks because they did what banking is supposed to do - and they are not too big to fail.

And I agree with you on QE - this is a chicken that will surely come home to roost as inflation where the govt - the biggest borrower - wins, and the ordinary guy gets stuffed. Never mind the lessons of history re hyper inflation As for the role of govt to create jobs, a big problem as you rightly say is the huge growth in the disparity between rich and poor - fact is a good chunk of the jobs now available are around minimum wage, which is not enough to live decently or raise a family. Henry Ford understood the need to pay his workers a living wage because he wanted them to be his customers too so he would sell more cars - which meant his workers needed to earn enough to be able to afford to buy his cars. That meant everyone was a winner. But the big corporations are now run by greedy men - and it is still almost exclusively men - who believe they are entitled to gobble bigger and bigger slices of the cake for themselves, which means there is less for everyone else. They have become the modern robber barons.

Podga makes a good point about microfinance but this, and "crowd funding" are probably really only viable for start ups and raising relatively small amounts of investment.

I don't know how it works in the US, Ashi, but in the UK the govt prints the money and hands it over to the Bank of England. The BoE then provides this money to the big five clearing banks at - currently - the lowest interest rates we've ever seen so those banks can then lend that money to businesses, at attractively low rates - with a reasonable "turn" based on properly assessed risk.

Thats not how it works in th UK.  The UK Gov't dosnt print the money.  It's the other way around.  The BoE does the printing.  And most of that money is actually being used to buy gilts rather than giving the money to the clearing banks

What you have to remember is that the government are trying to increase lending at the same time as forcing the banks to hold higher capital ratios - these two goals are at odds with each other.

My view of economists is that they are in a room full of levers all connected with rope.  Pull one, and it tugs on 3 others.  And some ropes are connected to levers that aren't even in the same room - they are connected to the Eurozone or the US, or Asia.  Then there are economists trying to control the movement of all these levers with 3 tiny toggle switches.  The fact is that an economy is too large and complex to impact with policy.  All you can do is nudge in certain directions - but its a bit like trying to direct floodwater with a couple of sandbags.

We are now in a position in the UK much like we were in the 1980's.  Then, we had too many people employed in unviable nationalised industries.  Today, we have too many people employed in the public sector.  When you look at the number of jobs created by the private sector since the start of the downturn - its staggering.  A HUGE number of new jobs have been created.  The problem is that the public sector has been cut faster even than the massive rate of job creation.

I don't buy the idea that manufacturing is a necessary part of the economy.  If we can't do it competitively, then there is little point in holding on to a romantic notion of the UK as a major output nation.  The fact is, if we were manufacturing on a competative basis with China, the only way it could be done is through massive automation - which would have little or no appreciable impact on the jobs market.

West

"Printing money" seems to be accepted as a more honest term - even if not literally correct - than "quantitative easing" which is typical of the mangled language that economists love

I take your point that it's the BoE that does the "printing" but surely the whole purpose of QE is to free up cash to be available, and if it's not getting into the lending system what's the point? And I'm not convinced the BoE is in reality so separated from govt policy. Even Charles Moore in the Daily Telegraph writes "The policy is presented as the Bank’s. Since 1997, we have learnt to believe we have an independent Bank of England. Gilt markets would take fright if they thought Britain had gone back on this. So Quantitative Easing, which sounds obscurely scatological, is passed off as an inside-the-trade matter from which we, the public, can avert our eyes. Yet QE helps entwine the Bank with the Government. Monetary policy has taken over much of the role usually assigned to fiscal policy. The Governor, reluctantly, is playing an unprecedentedly important role in how we run the country. The Chancellor is trying to keep the Bank looking independent while covertly trying to ensure that it implements his wishes. Since QE was introduced, the Bank has offered several different explanations for what it does, and the Government has tried not to talk about it. We haven’t had such an unmentionable policy since shadowing the Deutschmark in the late 1980s. Only now, pressed by the bright new MP Andrea Leadsom, has the Commons Treasury Select Committee said it will let some daylight in upon the magic."

See - smoke and mirrors!

A problem with the closure of so much public sector employment is we don't know what the cost savings will be, nor where the privatisation money will go - the split between new employees in the "new jobs", shareholders [foreign companies?] and the fat cats creaming off as per Ashi's comments. And so many of the "new jobs" in the private sector are around minimum wage, part time and with pitiful pensions - this impacts the economy if people in these jobs will need supplementary benefit and will need pension support because they can't afford to top up their miserable private sector pension plans. Cameron bangs on about us "all being in this together". Frankly that's a lie - we've seen executive pay continue to rocket even during this recession, while pay for ordinary folks has been slashed. This has to be addressed and corrected.

As for manufacturing not being "a necessary part of the economy", I must say I have a problem with that view. Fact is manufactured things is what we spend our money on, whether it's Apple's latest iGadget, or a nuclear power station. If we're not making those things or exporting equivalent then our collective wealth is flowing out of the UK economy and into the coffers of other nations' economies. So if we're not making any of the things we buy as consumers then we have to have a highly educated workforce with high level intellectual skills to sell their brain talents to foreign buyers. That's not happened on anything like the scale needed and there's no sign of it happening anytime soon for the 30-40 million plus working age population. While we've failed to build a sufficiently educated workforce skilled in delivering high level services - and I'm not talking Call Centres - Germany has continued to develop an important manufacturing base to its economy. We all want their cars, washing machines and fridges. It's a pity Thatcher steered our economy with such singleminded determination to "services" without delivering the educational outcomes for a service economy ever to have been sustainable, and discounted - some will say undermined - the possibility of following Germany's example of making quality stuff the world wants to buy. 

The bank I used to work for is a British Bank....  When the whole subprime thing blew up, the bank refused to accept British government's helping hand, which I admire their gut for it....  If I were the bank, I would take the money, but use it effectively.  Taking the money is not an admission the bank has done rotten things like other banks did.  The money British government given out was to every British bank, not just our bank.  So I don't know why the pride.

In any case.  This is how US government did with our monetary policy (we're ahead of you guys on this, though it didn't prevent our country's banks from being corrupt).  The US government has always had this loan assisting program that "requires" banks to lend out to low-income families (and we're not talking about Fanny Mae and Freddie Mac, who are underwriters of subprime loans.  This is a separate system).  I don't remember what the plan is called, but it's one of the questions we had to answer when the bank's compliance officer came to visit our branch.  I am mentioning this because unlike the British system you are trying to explain, that gives help to banks all across the board (and the same policy that G W Bush gave to save Bank of America, but BoA abused it), this plan only gives to low-income families the loans they truly need.  These people are actually going to live in the house they buy with such assistance, rather than buying up houses, inflating the housing price artificially, and doing it purely for personal gain.  It is a very good system in my opinion, in term of equalizing wealth between rich and poor (though I don't think the original intention is that, but it does have that effect).  But now we are seeing banks are doing the opposite, and deny families who actually want to be a home owners, but can't because the banks are using subprime loan crisis as an excuse not to give people a chance to pursuit after their own happiness.

Yes, I know about minimum wage jobs.  I've been working in such condition for such a long time now.  It's not possible to pay for rent with such low income, let alone gasoline and car insurance.  Without cars, you can't work in this part of the US (our average commuting time from home to work is about 45 minutes on freeway.  Seriously.  1/5 of my income is burning up in gas and contribute to polluting the environment).  If someone said poor people are poor because they're lazy, just give them a minimum wage job and see how life is.  Many poor people have 2 or 3 jobs or they can't survive in this part of the country.  It is that expensive to live here.  Not to mention many of us are denied of any job opportunities.  It is a very crazy, unsustainable economic format.

And I disagree with you on the lending to mortgage as oppose to lending to business issue.  Every Joe's/Jane's mortgage has higher priority over business lending.  I don't think the government has enough money to make everyone happy, so give ordinary people money first is the way to go.  I am very financially conservative, but I endorse such policy, just as I endorse my city's policy during the previous mayor's tenure to keep building affordable housings for low-income families to intentionally crash the house market.  I am pretty sure you can imagine why home builders were opposing such city mandate (and that's why it stopped after the incumbent mayor got into the office).  I see this  measure as a sort of local anesthesia.  Why try to create a national policy when it's Silicon Valley (and other metropolitan areas) that's affected by the skewed real estate induced inflation the most?  A national remedy will cause areas that were not affected by such crazy housing market in the first place to be wrongfully reprimanded.  US is VERY large country after all, with very diverse economic structure that shouldn't be all done in a cookie cutter format.

And put people onto temporarily government payroll (but not government welfare money) is an emergency plan, that shouldn't be a permanent solution.  But with our economic condition, it is necessary.  Once the economy is back on its feet, I do believe government should slowly transition workers back to private sector again (and that's what we are seeing done now by the US government).   I do hope private sector realize the purpose of tax-cut is to encourage hiring new employees (therefore, stimulating the whole economy), but not for personal gain.  But when private sector refuses to hiring people, it's government's job to do the dirty work.  Sometimes I do wish government can do something stronger than clean up the mess private sector makes, but this is democracy we're talking about....

And to Zombie.  The favorable lending rate British government gives is called LIBOR (London Inter-Bank Offered Rate).  It's an international standard.  It's not just the British banks who are using that, but US banks at least are also using such rate as a model of how much a bank should charge for various debt instruments (in addition to Prime Rate, but LIBOR is more of an inter-bank lending indicator).

And using low interest rate to stimulate the economy has proven to be useless at this point.  There is no point of continuing on using Keynesian economics, if the trick doesn't work anymore.  QE is just ridiculous and almost delusional (QE is used to buy back government debts, but I see it as a rather bizarre, if non-standard spin on Keynesian economics, because it doesn't really control money supply like monetary policy should be doing).