The Diabolical Side of ZIRP



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The Diabolical Side of ZIRP

December 14, 2015

The pages of have been filled with analysis on the impacts of ZIRP, or Zero Interest Rate Policy (of the Federal Reserve) for many years. Even though the recession officially ended 6 1/2 years ago, the policy has remain in place for the last 7 years. The main results of the policy has been to benefit the large banks and to generate bubble in asset markets. However, there is a much more diabolical side of ZIRP, its negative impacts on the productive and savings classes.

While banks have enjoyed low interest rates by the Fed, some have also been receiving risk free interest from the Fed on thir “excess reserves.” [The excess reserves is money they received from the Fed in exchange for the banks' toxic assets, such as mortgage backed securities.] Savers have suffered mightily under the policy. For example, my savings account earns me .01 of 1% interest so that I receive 1 penny for every $100 saved for a year. I would have to have $1.2 million in savings just to reach the Federal poverty level income. 

That is a problem that millions of Americans have been facing for the last 7 years. Its a problem that I have been asked on hundreds of radio and podcast interviews and I have not been to a party in over 5 years where at least one person asks about the problem and how to solve it. There really isn't any solution this “the problem.”

First of all I'm not a financial advisor, but second of all its a problem I face too and have not found any really good solutions. “The problem” is that these people want income from their savings that is both stable and secure in order to finance their retirements. Those criteria eliminates gold, stocks, bonds and most other investments. They wants investments for their savings like government-insured certificates of deposits or insured money market accounts. 

The Fed has ruined millions of people's retirement. Millions have also delayed their retirements. These are people who have worked hard and saved money. Many of them have worked hard for half a century only to retire into a health care system that is a quagmire, a very uncertain housing market, and where banks pay no interest on their savings.

This explains why most of the new jobs added in the last 15 years have come in the older age demographics, such as the 55-65 age groups and the 65+ age group. Its perfectly fine to work into your retirement years, but in a growing free market those who work and save should have the opportunity to retire earlier and in good style.

The current situation is testament to the government's mismanagement of the economy and in particular the diabolical nature of the Federal Reserve's ZIRP. The question this week is whether Janet Yellen and the Federal Reserve will chose to continue to give riches to the banks or will it give some hope to the hundreds of millions of hard working and saving Americans that they have made to suffer for many years. 

For more on the bad effects of ZIRP go here.

Note: The views expressed on are not necessarily those of the Mises Institute.

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