I don't know why so many people on HN get ZIRP wrong.
The problem with ZIRP isn't the absolute level of interest. The problem is that the central bank thinks it can simulate negative interest through QE. The zero lower bound is ultimately a price guarantee by the government that it will offer an infinite quantity of bonds to the general public to prevent the interest rate from dipping negative.
Any form of lower price control will cause an oversupply. In this case (mostly rich) people are oversupplying capital to the government instead of simply spending it.
Since the money is concentrated in the hands of fewer and fewer people, their investment decisions are going to either be a random crap shot, since information is distributed in the economy and the people who have information to make informed purchasing decisions have no money, while the people with money have no idea what to do with it, or it will endlessly get cycled through more QE and government debt.
In a hypothetical scenario with negative interest, wealth deconcentrates so that money goes to where it needs to be.
Buddy I'm not going off an economic theory about ZIRP like you posted, I'm going off having run valuations on companies and seen that interfering with the risk free rate made bad companies (and their wasteful activities) valuable.
I agree the problem isn't the absolute level of interest. My point is the yield curve should reflect the market appetite for risk, and we broke that relationship.
The problem with ZIRP isn't the absolute level of interest. The problem is that the central bank thinks it can simulate negative interest through QE. The zero lower bound is ultimately a price guarantee by the government that it will offer an infinite quantity of bonds to the general public to prevent the interest rate from dipping negative.
Any form of lower price control will cause an oversupply. In this case (mostly rich) people are oversupplying capital to the government instead of simply spending it.
Since the money is concentrated in the hands of fewer and fewer people, their investment decisions are going to either be a random crap shot, since information is distributed in the economy and the people who have information to make informed purchasing decisions have no money, while the people with money have no idea what to do with it, or it will endlessly get cycled through more QE and government debt.
In a hypothetical scenario with negative interest, wealth deconcentrates so that money goes to where it needs to be.