Wednesday, 17 December 2008

US Federal Reserve adopts ZIRP

ZIRP is Zero Interest Rate Policy. The Fed has set its interest rate to 0% to 0.25% - they're not committing to a specific number anymore. The Fed can do this because, unlike the Bank of England, the Fed only sets a "target" rate, and then uses "Open Market Operations" to force commercial rates into line.

Of course to force down the rates they are trying to influence they must flood the country with cash; which they will naturally "print". If asked, they would assure you that at some point in the future, when the credit crunch is over, they will collect up all this "printed" money and "burn" it so that there is no long term loss of value to the dollar.

The question is: should we believe them?

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