Welcome to the ZIRP economy

low-interest-rates1I’ve been pondering about a topic for a while now. The ZIRP.

Zero percent interest rate policy. Yes, in its way a very fascinating way to stimulate the nation’s economy and not (yet) adapted in a lot of nations. But we are getting there. Australia recently decided to move down the Interest Rate down from 2.5 til 2%. Sweden have already introduced a minus (!) interest rate to stimulate the economy now swimming at -0.250%. Even though the United States decided to leave theirs until next quarter it is still at the ridiculously low 0.250%.

Yes, by looking at the chart below it seems very clear where the globalised economy direction is heading.
IR

Down!

And then down again.

With this trend, we are cruising into very interesting times in the macro economical world. Unknown and uncharted territory indeed. Are you actually telling me that from now on the norm when holding money is to pay for this service?

The idea is very strange indeed where just 10 years ago banks where fighting for the best interest rate to be able to get their hands on customers money. These times seems to be gone. Long gone.

Even though Pines and Gilmore, when describing the service economy, said “it might be a valuable idea to learn to take fees and charges and entry fees in order to make the economy more volatile”, I am not sure they meant by this scenario.

Will money in the end be such a high risk that no body want to handle it unless they get paid for it? That sounds an awful lot like a body guard service. Perhaps the Scrooge McDuck version of it.
Yet, the very idea is indeed frighting as it will push us in directions where the original monetary idea will lose it values and principals. At least by traditional means. But what then? Greece, might be the very first country in a while in the western world who will test out these “exiting” ideas.

Back in the early 1990’s the Swedish finances, dept. and currency was in free fall. The cure? 500% interest rate in order to save the falling krona. The then prime minster of Sweden Carl Bildt said in 1992 “It is the most serious situation we have had on the European foreign exchange and money markets that I can recall”.
(Read the old article from 92 in New York Times http://www.nytimes.com/1992/09/17/news/17iht-perc.html)

Unfortunately like most events, history has a way to repeat itself but instead of raising the interest rate, they now moved it to a minus rate in order to devalue it towards to other currency’s to stimulate export amongst other things.

A 180 degree turn in 25 years? That is something. Really something.

(Un)fortunately, I was not old enough to speculate about different scenarios about currencies, macro economy and interest rate in 1992 and was mostly concerned about the latest Lego castles, fishing and cooties. It seems though that I am to get another chance, same scenario, different numbers.

Dare I to say, to be continued?

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