Zero Interest Rate Policy (ZIRP)

The line: I Wanna Be Your Dog, sure sums up what investors tolerate today (i.e., ZIRP, bailouts, MF Global, etc):

The issue that strikes me most these days:

"On Wall Street and inside the Beltway there are no perceived victims of low interest rates, because low rates result in obscene spreads between the real cost of institutional borrowing (essentially zero) and the real rate of consumer lending (18% to 24% on real-world short term loans). Meanwhile every barrier possible has been raised to prevent those lower rates from propagating to those most in need of longer term relief. Lost on the policy makers is the fact that whats good for banks is not necessarily good for their depositors. Simply stated, it has become impossible to live on the earnings generated by a lifetime of middle class savings. In June 2007 an accumulation of $2,000,000 in an IRA or 401K would translate into $100,000 in annual income when invested in 1 year T-Bills, an annual income higher than the per capita income in any of the richest nations on earth. That was certainly a reasonable target for a middle class household, and one that would allow a comfortable retirement without significant changes in lifestyle. Today the same $2,000,000 (if it was somehow preserved throughout the Great Recession) would earn $4,200 per annum if invested similarly or roughly the per capita income in the Republic of the Congo. No wonder that many Baby Boomers are increasing savings and postponing retirement to the chagrin of younger people desperately looking for jobs; the alternative is a third-world lifestyle."

Well stated. When you think about this, it's not hard to imagine that the worst is still to come. Not being dramatic, but think about the notion of savings as worthless. That's where we are at.

Slippery Ben Bernanke Speaks Sideways

Bernanke on the U.S. recovery outlook:

Federal Reserve Chairman Ben Bernanke said Monday he is hopeful the economy will gain traction and not fall back into a "double dip" recession. "My best guess is we will have a continued recovery, but it won't feel terrific," Bernanke said. "That's because economic growth won't be robust enough to quickly drive down the unemployment rate, now at 9.7 percent," he said in remarks to the Woodrow Wilson International Center for Scholars, a nonpartisan research group.

What kind of "jobs" do these people hope to magically appear? Mall workers? Best Buy sales clerks? Let's be honest, they know there are none. If there was a need for legitimate hiring, and there were profits to be made, the private sector would hire. They are not. Draw the conclusion.

One more thing? Ben's "best guess" comment irks me. Consider his fine "guess" from May 17, 2006:

"We believe the effect of the troubles in the subprime sector on the broader housing market will be limited and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system."

And this guy is listened to still today.

Read On

More on why Zero Interest Rate Policy (ZIRP) is killing investors:

• Why ZIRP doesn't work.
• Continuous ZIRP Is Investor Poison In The Long Run.
• ZIRP and Interest Income.

More:

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