I got some great emails yesterday regarding my “one question” for Ben Bernanke. An email from DanH said:
“This question cannot be answered because there is no evidence that a ZIRP works. The only thing we know a ZIRP does is help bankers to make more money and blow bubbles.”
ZIRP is zero interest rate policy for those that are wondering. I’d love to hear some reader responses to this one question (which is below). Play devil’s advocate if you agree with me. Or feel free to rip into the administration and the Fed for blowing more bubbles. I have tried to justify Bernanke’s approach, but given his less than impressive forecasting record and strict adherence to a Greenspanian approach I find it hard to justify his actions. We now know that zero interest rate policies did not work in Japan. We know that the low rates of 2002 helped contribute to the housing bubble. You could even argue that the ZIRP in Japan helped create the Yen carry trade which ultimately helped contribute to bubbles in the Nasdaq, China, debt markets and global real estate. We also know that Greenspan’s approach was “flawed” by his own admission. So how can anyone justify the current policy approach? Does anyone have a reasonable answer for this one question:
“Knowing now that low interest rates and government spending failed to stimulate the economy in Japan during the 90’s and only helped make matters worse following the 2002 recession, can you please explain why you expect this same approach to work out differently this time around?”
If so, I am all ears….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.