Zero Interest Rate Policy (ZIRP) was instigated by a credit induced collapse of the US financial system and perpetuated in December of 2008 by desperate financial policy makers as a fix to problems they created in the first place.
In reality, it is simply an epic distortion of normal economic signals that cleaned up the mess created by previous policy distortions (like the commercial credit bubble of the Greenspan era) by systematically (5+ years and running) main lining new distortions into the system.
So in addition to this picture, which could one day hang in a monetary museum with the title ‘Grandma and Her Savings Account Bail Out Wealthy Asset Owners’, let’s take a walk down memory lane and marvel at some other pictures created by this policy… Continue reading "ZIRP Era in Pictures"→
Four years after we brushed up against "financial Armageddon," did you think you'd be reading this?
Federal Reserve Chairman Ben Bernanke said...banks need to have more capital at hand in order to ensure the financial system is stable. Bernanke said regulators were taking steps to force financial institutions to hold higher capital buffers...
- Reuters, April 9
It appears our financial system is still not as stable as it needs to be. But guess who relaxed the banking system's "capital buffers" in the first place?
The Fed increased the credit in the system in the 1990s by the de facto removal of reserve requirements for banks.
- Robert Prechter, Elliott Wave Theorist, November 2011
Prechter's September 2011 Theorist provides this additional insight:
In the late 1990s and mid 2000s, the loan-to-deposit ratio for U.S. banks was nearly 1.00, meaning that almost all deposits were lent out. That shortfall alone was a serious problem, because if even 5% of depositors had decided to withdraw their money, banks would have been unable to pay. Some of the banks' loans were quickly callable, but by 2006, the credit-fueled real estate boom had claimed a large percentage of outstanding loans, both inside and outside the banking system. These loans are not quickly callable. The problem was serious in 2002 and enormous in 2006. Now it has become acute, because many loans are becoming fossilized, as the market for mortgage investing has dried up while foreclosures on the "collateral" have been slowed by court actions and politics. Continue reading "U.S. Financial System: Is It Finally Stable?"→