We’ve Been ZIRPed: The perils of the zero interest rate policy. “…talk in hushed tones to Wall Street hedge funds, and they may explain the dollar carry trade, the one where you borrow or even short U.S. dollars and buy currencies, bonds, and stocks in higher yielding, emerging market countries​—​yes, the Fed is stimulating, but in places like India, South Africa, and Brazil.” We live in the Age of Zero: zeros in the White House and Congress, zero interest rates, zero growth, zero improvement, zero other ideas… Zero.

{ 4 comments… read them below or add one }

Bonfire of the Absurdities December 24, 2012 at 8:49 am

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The elephant that everyone is ignoring is still in the room… how can the economic ship sail with this big block of conrete weighing down the stern: “Banks were (and still are) sitting on piles of underwater mortgages. They can’t sell them at depressed prices, else they trigger losses and writedowns to their leveraged balance sheets and maybe​—​yikes​—​go bankrupt. The stock market knows this, which is why Bank of America shows $20 in book value (assets minus liabilities) on their balance sheet, but the stock is selling for under $11. Citigroup’s book value is $64, and the stock is $37. Better that banks had been stripped of these mortgages back in 2009 via temporary nationalization or good bank/bad bank splits. But no one had the courage, so instead we are subject to ZIRP, at least through mid-2015.”

Note: the way accounting rules work, a company can carry assets on the books at face value even though the true value is miles away from that. This happened to Warren Buffet – Berkshire Hathaway, the company he heads, was once a major apparel maker. Buffet bought it because it had a book value much larger than the stock price. Unfortunately, the book value represented obsolete plant and equipment, worth much less than the value BH carried on its books, thanks in large part to the migration of apparel making to other countries. Once he liquidated the assets, he had to write down their value on the books – bye, bye large book value.

This works the other way, too: for example, companies may have land on their books and show the value being what they paid for it a century ago. Often times, that land is worth many multiples of that price today.

poppajoe49 December 24, 2012 at 7:57 pm

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As far as BOA goes. They are insane. They’ve been destroying the value of their depositors assets for years.
They have put their money at substantial risk.
What would you call it when someone issues credit cards to illegal aliens, with no proof of ID, no SSN, and no proof of ability to repay the loans?
I closed my BOA accounts when they did this.

redabogado December 24, 2012 at 8:51 am

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Zero-bama, yes he can!!! make life worse…..

Old Goat December 24, 2012 at 9:16 am

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Zero Global Warming
Zero sea level rise (or at least very little)
Zero common sense amongst governments, who, in turn, have zero interest in their countrymen – only in their money.