The ZIRP/NIRP Gods & Their PhD Priesthood Have Failed

Tyler Durden's picture

Submitted by Charles Hugh-Smith via OfTwoMinds blog,

The priesthood's insane obsession with forcing people to spend their savings by punishing savers with ZIRP/NIRP has failed spectacularly for a simple reason: it completely misunderstands human psychology.

Let's start with a simple chart of the Fed Funds Rate, which the Federal Reserve has pinned near zero for years. This Zero Rate Interest Policy (ZIRP) is the god the PhD economists in the Fed and other central banks worship as the supreme force in the Universe, along with its even more severe sibling god, NIRP (negative interest rate policy), which demands that banks and depositors must pay for the privilege of holding cash.

Precisely what have ZIRP and NIRP fixed in the global economy? The short answer is "nothing." Instead of fixing what's broken, ZIRP and NIRP have pushed a broken system further along the path of self-destruction.

Let's stipulate that not all economics PhDs are members of the failed Keynesian Cargo Cult Priesthood. A few "professional" economists get it, but they are heretics who are kept far from the priesthood's temples of power: central banks, central state Treasury departments, major university faculties, etc.

The basic problem with the professional priesthood is they believe that their cult is a "real science," and their "proof" is a bunch of equations that they claim map and predict human behavior. Like the other social sciences, economics suffers from a pathologically obsessive envy of physics, i.e. "real science" that actually predicts the actions of materials and objects in the real world.

The truth that the economic priesthood cannot accept is that "economics" is more psychology than physics. Human behavior cannot be reduced down to simple models and equations, as the variables are many and difficult to quantify, and the spectrum of potential responses is too wide.

The entire Keynesian Cargo Cult Priesthood boils down to this absurdly wrong-headed model of capital and human psychology: the economy suffers when people "hoard" their earnings. So the goal of the priesthood is to persuade them to stop "hoarding" their cash and force them to spend it. (This spending is known as "aggregate demand" in the priesthood.) The priesthood worships the gods of ZIRP and NIRP because they are believed to force people to spend rather than "hoard."

The ultimate goal of the Keynesian Cargo Cult Priesthood is to force people to borrow more money from banks, as this increases bank profits and boosts "aggregate demand" by tapping future earnings. Taking out a loan brings future demand forward by issuing a claim on future earnings.

All of this priestly mumbo-jumbo is of course insane. "Hoarding" is not an evil to be stamped out by the cruel god NIRP who destroys any yield on savings; "hoarding" is the foundation of capitalism, as savings ("hoarding" to the insane) are the capital that is invested in productive assets which generate the wealth that funds wages and taxes.

Destroy savings and you destroy productive capitalism.

The priesthood's insane obsession with forcing people to spend their savings by punishing savers with ZIRP/NIRP has failed spectacularly for a simple reason: it completely misunderstands human psychology. Now that ZIRP and NIRP have destroyed the income that was once earned on savings, the only rational response is to save more, not less, despite the priesthood's policy of negative rates.

The priesthood is absolutely blind to another key aspect of human psychology. The policy of negative interest rates is so extreme and so destructive that it proves the priesthood and its Keynesian Cargo Cult have completely lost their way, yet their grip on power only increases.

Who could possibly have faith in such insanity? The only rational response is to fear the future consequences of such craziness, and the only rational response to this well-grounded loss of faith in the future is to save more, not less, regardless of the costs imposed by the insane priesthood.

The Keynesian Cargo Cult Priesthood is not just clueless - it is forcing everyone to drink its toxic Kool-Aid. Like the crazed dictator in the Woody Allen comedy, the Keynesian Priesthood may well order us all to wear our underwear on the outside of our clothing, if they reckon that would boost "aggregate demand."

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VWAndy's picture

 Faith and force or truth and love. I know what side Im on.

HopefulCynical's picture

The banksters cling to Keynes because his ideas serve to drain the wealth of the productive classes into the banksters' coffers.

Keynesian economics, much like Marxism, is predicated upon outright lies and a purposeful disregard of human nature.

Stuck on Zero's picture

ZIRP and NIRP have not failed. They have been a roaring success for the only people who count in this system.

thesonandheir's picture

Follow the yellow brick road

SomethingSomethingDarkSide's picture

MOAR ENTRAILS!  TEA THE LEAVES!  FOR THE LOVE OF GOD, SOMEBODY READ THE STARS!

August's picture

The problem with the reading of entrails is that, so far, we're not using the right species.

RaceToTheBottom's picture

I am all for the financialization of entrails....

 

Or more accurately, Show me the entrails of WS'ers

Creative_Destruct's picture

Central bankers guts, Greenspan, etal. Insight and justice in one.

Creative_Destruct's picture

Roman Haruspexs used chickens....lets use Greenspans guts.

Boris Badenov's picture

"We Are The Priests of the Temples of Syrinx...."

5 letter word, starts with M..

WassamattaU's picture

ZIRP/NIRP has failed spectacularly for a simple reason:it deliberately misunderstands human psychology.

FIFY.

adanata's picture

 

Exactly... as I noted elsewhere today, ain't nobody trying to 'save' this system. It's like Bersucke pretending he doesn't understand what the end result will be of debasing the currency with QE.  Come on Sheeple, wake up already. Actually NIRP outta do it. They may have gotten away with it in Cyprus... I don't believe they will get away with it here. You talk about pitchforks and torches...

bada boom's picture

I don't think they have cast their last spell to rid the public of their savings.  There more head spinning and projectile vomiting to come.

Killdo's picture

For those who don't have a checking account with CITI (and a 15k to put in there for 30 days) - they give $400 bonus to open this account. If you leave 15k in it for 30 days they pay $400 after 90 days  - beats ZIRP,

after a month you can put that money into a CHASE account where they have a similar deal and they give you 500 bonus (but you have to keep it there for 6 months or you only get 300)

GRDguy's picture

They didn't fail. It's just not your success,  it's theirs. As explained right up front in the free 1889 book "The Great Red Dragon: Foreign Money Power in the United States", their "goal is the own the earth in fee-simple."  They're well on their way.

Don Sunset's picture

The full magnitude of the failure won't be felt for years........so hold on to your hats!

SAVERS, the backbone of the economy have been creamed and the impacts of this will be epic.

Apocalicious's picture

EXACTLY RIGHT. The market is people, not immutable laws of physics. 

RaceToTheBottom's picture

"Precisely what have ZIRP and NIRP fixed in the global economy?"

 

WS profits.

Never forget that.

CRM114's picture

It's not complex human psychology they've missed, it's simple common sense. It is, in fact, what the Government and banks require financial advisors to tell people.

Low job security = spend less and build up a contingency fund

Low market certainty = reduce investment in shares, and put off larger purchases

Low interest rates = put a larger proportion of your earnings aside for retirement

Joe Public is doing exactly what the lower echelons of Government and banks tell them to.

 

But the f#ckwits at the top haven't even got a clue what they've told their own organisations to do.

 

I rather think the economists have forgotten the origin of the word - oikos, nomos, the ordering of the house. This is a complete failure to consider what the average person is doing with his household affairs, despite the fact that what is happening is in fact Government advice.

THE DORK OF CORK's picture

"hoarding" is the foundation of capitalism, as savings ("hoarding" to the insane) are the capital that is invested in productive assets which generate the wealth that funds wages and taxes"

 

Firstly hoarding is rational now as it is a rational response to waste.

Hoarding is pretty much a foundation stone of capitalism and when the author admits this then well he inadvertently points the finger at capitalism 

Capitalism or more specifically usury is waste.

People are forced to  " overinvest" to gain access to scarce money.

This "investment " creates its own scarcity as the chiefly capital goods depreciate. 

This depreciation subtracts from real income.

Net income is pitifully poor in capitalist countries.

When you observe the physical economy you see that most of the energy produced is lost in Transformation and transmission.  

 

aardvarkk's picture

You use this word "capitalism".  I do not think that that word means what you think it means.

taketheredpill's picture

When the machine finally breaks people will be upset and will want to punish someone.  The people who caused and/or participated in this destruction will not be the ones punished.

 

If you have young kids and receive forms (census) that ask what religion they are you might consider putting down Hutterite.  Can't hurt.

Bureau of compliance's picture

ZIRP and NIRP have failed. Perhaps Human Sacrifice would appease their insatiable Overlords. But it has been Prophesied: "In those days, an Avenging Angel, clothed with the Mantle of von Mises will avenge the Slain..." https://www.youtube.com/watch?v=Fe_QHOSuml0

orez65's picture

It iis not SAVINGS, it is CAPITAL CREATION.

CAPITAL = PRODUCTION minus CONSUMPTION

The PRICE of CAPITAL is the INTEREST RATE. The Capital's price depends on the AVAILABLE AMOUNT OF CAPITAL. Recall "The Law of Supply and Demand" by Adam Smith.

Counterfeting capital by the Federal Reserve, from pulling it out of its ass hole, in the form of Federal Reserve Notes does not create real capital. That is, people and companies are not consuming less than they are producing. The Federal Reserve is MAKING BELIEVE that they are producing more than they are consuming by counterfeiting capital.

AN ECONOMY CAN NOT GROW WITHOUT REAL CAPITAL. 

hooligan2009's picture

re-arranging, are you saying that

consumption = capital minus production?

surely consumption is a choice in the level of demand from the (sum of) individual wants/needs?

capital is a residual of past profits and iniitial investment and the rate of obsolescence (not deperciation) ; production is limited by capacity and demand.

an economy cannot grow without demand, limited by capacity to pay. uou might increaase demand with more pay, but you reduc profits, hence profits and capital

the fed is buggered becuse it has caused a drop in demnd by removing interest paid from the economy.

THE DORK OF CORK's picture

 http://m.youtube.com/watch?v=6NuZ_Lz7e-0

 

History of capitalism in Ireland.

Hoarding over and above let's say the collection of the autumn harvest = waste.

big-data's picture

The Judas goat of NIRP in the G-7 was Japan. This chronicles the "logic" of implementing ZIRP, then NIRP and the contemplation of helicopter money in Japan along with how Japan ("we the people") has reflexively adapted to Keynesian idealism with real world sensibility.

https://medium.com/deepconnections/prevailing-gray-swans-3-august-19-2016-b907b50ab921#.2hkmohs16

honestann's picture

The priesthood's insane obsession with forcing people to spend their savings by punishing savers with ZIRP/NIRP has failed spectacularly for a simple reason: it completely misunderstands human psychology.

The completely hilarious part is the following.  The ACTUAL inflation rate has been about 6% to 10% for several years now.  But the predators-that-be LIE and report an official inflation rate near zero.

And THAT is precisely what makes saving seem like a reasonable choice.

Of course the truth is, with inflation at 6% to 8%, saving is currently insane.

However, for the same reasons, spending your fiat currency on physical gold, silver, platinum and many goods and goodies that do not degrade over time (and can later be traded for other goods and goodies) is currently extremely wise and prudent.

So the banksters are trapped in another no-win situation.

If they admit inflation is actually quite high while interest rates remain low, that WILL get people to spend, spend, spend like the banksters wish.  However, some percentage of those spenders will be wise enough to spend their fiat currency on gold and silver WHICH THEY FEAR LIKE THE PLAUGE, because it is a major step along the path to the final destruction of fiat currencies and their entire scam.

CRM114's picture

I agree about real inflation, and the real job situation is also nothing like what their stats proclaim. However, saving is not insane, it's the least worst option. It is insane to buy things you don't need.

 

The best investment is not precious metals. Anyone considering that knows very well what happened in the 1930s. The best investments are long term expenditure on property, especially that which reduces future bills, and (as you say) tradeable goods.

honestann's picture

The best investment is to get the hell outta dodge, convert your savings into a productive equipment and supplies, and thereafter produce a never ending supply of goods or goodies you can trade with others for whatever you wish.

However, so few people are willing to do that, I don't mention that option here (even though that's precisely what I did, and am massively better off for doing so).

To buy [the vast majority of] real-estate in the USSA or western world is a very risky move.  Not only is real-estate in a bubble again, but one of the favorite moves the predators-that-be will take in the future will be to greatly raise real-estate taxes.

And no sane individual would start any conventional business in the USSA or western world at this point in history.  That is just setting yourself up for endless massive abuse and theft.

CRM114's picture

Well, as you've probably guessed, I've also left Dodge, etc.

However, it's very hard for most to completely sacrifice one's childrens' futures, etc. to go live in somewhere safe in the middle of nowhere. Also, quite a few honest professions and businesses are still going to be valuable whatever happens. Greetings cards are probably not a good idea, but the world will still need nurses, carpenters, etc.

And, of course if you've got a relative (that would be me) with a self-sufficent 40 acres and supplies for the twenty of you who will arrive when SHTF, you can carry on normally. Just keep the truck at least half full of gas, $500 minimum in cash, and your winter boots by the door.

 

Losing 'everything' is not the problem, as long as you have a plan to start again. The vast majority do not have that plan.

 

p.s. some bits of the World are still very honest and decent. For that reason, of course, they never hit the press. There's no 'human interest', and certainly no advertising revenue, in quiet, pleasant success. More Blood! 

VWAndy's picture

 Yep that pile of good tools looks better and better. Im still looking for a nice old anvil 100lb or better with a nice ring to it.

Creative_Destruct's picture

"...not all economics PhDs are members of the failed Keynesian Cargo Cult Priesthood"

Yep. There be one guy I know who works in the basement...with no stapler.

THE DORK OF CORK's picture


Hoarding is a consequence of waste.

Keynesian superproduction actually stimulates hoarding.

Rationing is a result of the war or consumer war economy.

When the "authorities" prevent hoarding they actually are encouraging starvation.

That's the next consequence of Keynesian policies.

The author has got it back to front and inside out.

Grandad Grumps's picture

It failed because it was designed to fail. The only time the parasitic elitists care about the people is when they are on their doorstep enmasse with torches and pitchforks.

besnook's picture

savers are unneccessary in a banking world that doesn't need reserves to create money. it does make sense that people save more to make up for lost income from interest bearing accounts. the biggest problem is the ultimate end of stagnating wages for almost 2 generations in the country that fueled the economic growth of the world since ww2. did they really expect loan demand to increase when wages haven't increased? destroying the middle class politically by dividing it up into its smallest adversarial particles so no viable opposition to political goals could be effectively established(what do transgendered matter think about trade policy matters that encourage outsourcing and reimporting goods and now services and how that effects their transgenderness?) to illegal aliens and h1b visas directly crushing wages to union busting that splattered the power of labor across the wall behind their heads have all stolen the last dollar out of the spenders' pocket book.....and they think the people are the problem for responding by foresaking walmart for the garage sale and the fine over obambamcare. meanwhile, 401ks aren't being offered, fixed retirement funds are a dinosaur, public pensions are being renegotiated, all of which takes easy money from the equities and bond market forcing the fed to cover the shortfall(what would rates be if .gov didn't buy all the worthless paper it is buying to keep the math model modelling?)

so what happens when the entre recovery is aimed at helping the .1%? everything the .1% buys causes inflation in those items from luxury cars to jewelry to art and real estate. the value of their dollar is diminishing while the dollar of the working class is becoming more valuable by the day in terms of shelter, food and clothing and health because the only thing trickling down is inflation without any cost push inflation in wages in sight. the dumbasses now think they can scare all the money into the light by getting rid of cash. if they take away cash the economy will fold like crumpling paper into the trash can.

you can't push on a string and you can't squeeze water out a rock. econ 101.

jfb's picture

If you say that saving is evil, never miss an opportunity to talk about your views and empty your bank account & stock , you are insine.

If you say that saving is evil but promote NIRP to pipe money into your assets (so your saving) with pseudo-science, you are a crook.

Do you think that Krugman, Yelen, Lagarde and all the others have no savings?

Speedfit's picture

I couldn't agree more with this article. If you are within a few years of retiring and the Fed is taking away your savings then the logical response is to spend LESS and save more otherwise you will have less to retire on than you had planned when interest rates were 3-5%.

Kirk2NCC1701's picture

ZIRP on money is just. For "paper shall not beget paper." Money shall not procreate, to make more money. To do so, is absurd, immoral and obscene. Sorry old people, putting money in a bank jar does not entitle you to more money. If you seek rental income, you should've been a Landlord.

Money should be a unit of account, fungible, and a unit of exchange. It can even be a store of value for a determined period of time, but not for decades.

NIRP on Cash, by contrast, is parasitic and downright evil.

So is the NIRP on Gold. It too is parasitic and evil.

 

What? Are you a shill, have a low IQ or perhaps 'selective amnesia', that compels you to ignore the Golden NIRP?  In case you missed one of my previous posts that sheds much needed light on this issue, let me give you a refresher...

- Interest Rate paid on Gold account = 0

- Transaction Cost for PM (at every buy/sell event) = 0.5 - 10%

- Transport Cost = Transport + Insurance costs

- Storage Costs. The further away, the higher the costs. This is especially true if you travel to visit the storage site.

If you add up all these costs (charges, fees, expenses), you end up with "NIRP on PM". The severity is worse for Bullion (cited above), but still applies to 'Unallocated Bullion' that you buy or sell with businesses like KITCO.

As much as we legitimately worry and complain about NIRP on cash, the NIRP on Bullion is far worse.

This may be psychologically unsettling or upsetting, but is objectively true nonetheless. Shoot the Messenger, if it helps you vent or feel better. It won't change a thing.

The point is... Everything has its time and place and season. PM has its place and time, but you need to be crystal clear on when it does, and when it does NOT.

 

p.s. As for the "Store of Value"...

- $1000 in 2013 = $1000 in 2016.  1 oz. of Au in 2011 = $1800. In 2015, 1 oz of Au = $1250. It's still ~$1320 now. Compare the "Store of Value"

VWAndy's picture

 How has high quality 100 proof booze done?

In.Sip.ient's picture

Never mind all this ridiculous hand wringing.

The fools want NIRP... they'll get it!

 

Question:  Anybody investigate Russian financials?

Dead serious question.  With a 9% prime rate and

a declared policy of keeping prime 3% over inflation,

Russian bankers are going to take over...

 

silverer's picture

So how come the top 1% don't rush out and spend, spend, spend? They invest, expecting to recover that initial outlay and get even more back in return. Isn't that the same as hoarding? Because the net effect is they are holding onto more money than ever? So these guys are total bullshit right out of the gate. Do as I say, not as I do. Right.

tncaver's picture

The Fed hates deflation so if NIRP gets them to inflation then that's what they do .

horseguards's picture

“savings…generate the wealth.” “ZIRP and NIRP have destroyed the income that was once earned on savings.”

Are you saying that Z/NIRP destroys the interest income stream on savings, the purpose of which is to invest to generate wealth? If one earns rate of 5%, that’s not a bad yield; 0% yield is shit. However, while 0% precludes investment, it is hardly a disaster since the underlying savings are greater by multiples.

“it completely misunderstands human psychology.” Is this the same psychology that permits spending money at a high rate of interest on a depreciating asset, ie auto’s? Is there a “scientific” explanation for contradictory behaviour from the same person?