Z.I.R.P. - Zombie Interest Rate Policy

"Lower rates drive up the cost of commodities: oil and food. And money that is spent on oil is sent out of the country to the Mideast and it doesn't help, and takes out income from people's pockets that could otherwise be spent on other goods. The second [ZH: and this is by far the biggest thing that the Fed refuses to acknowledge] is that not being able to earn a safe return on savings, is causing people to hoard savings rather than consume. In other words if I know I am going to earn 3% in the bank I can spend that income and I can have visibility towards that, but if I know I'm going to earn zero in the bank, in order to figure out how much I need to save for retirement I need to save a much bigger number. Which means I can't spend much now, I need to save more now, to build up those savings for retirement. If I am already retired and I am on fixed income, my income has now really gone down and I have to hoard money so I can spread it out thinner over a longer part of my life. So by denying individuals savings or interest on income on their savings, it is causing hoarding which is driving down consumption which is hurting the economy."

From Zero (not Zombie) Hedge

"In terms of the savings, I don't think it's a zero sum, because it's a multiplier on the behavior. It's not just the income I am not receiving now. It is the income I don't expect to receive in the future as well. Now we are years years into [ZIRP] with a promise of at least three more, so that's seven years, and you are getting a change in behavior on a multiplied basis."

Kenny Bing remarks:

I think that one thing that Ben "Fun Bucks" Bernanke is not factoring into his sophisticated thinking is how ZIRP is going to have blowback where future borrowers are concerned.  After he has left and when rates do begin to move back upward and your typical car loan goes for something like a more normal 5, 6 or 7% for sixty months (I can hear the gasps now), how are your typical borrowers going to initially react?  They have become accustomed to financing a set of wheels for 5 or 6 years at rates for conventional financing priced at 2 - 4% (we are currently writing five year notes at 1.99%).  My guess is that 5, 6, 7% is going to feel like highway robbery to them (even though it is not).  How are mortgage borrowers going to react when rates become more normal, market driven, and less manipulated?  What will that do to housing prices?  The fraud / sham / manipulation can only go on for so long.  My first house was financed at 10% for 30 years and that was a DEAL at the time, but the purchase price was about the price you would pay for today's large and well equipped SUV.