Zero Interest Rate Policy - What does it mean?
In an effort to stimulate their economies to emerge from a deep slumber many countries are moving toward a zero interest policy. One thought behind this move is that consumers would borrow and spend more because rates would be lower. The other thought was that since consumers would earn no interest on their savings, they would be tempted to spend them.
That policy seemed to work a small extent but it has merely accomplished below average economic growth and the move towards a zero interest rate policy (ZIRP) has actually backfired.
Since consumers are earning less and less on their savings, many have realized they have to save even more to compensate for the low rates. So rather than an increase in spending, there has been an increase in savings.
When confronted by this failure, instead of reversing course and returning us to more normal interest rates, governments and central banks are doubling down and taking us to a negative interest rate policy (NIRP). This has magnified the problem even more.
So far one area which has been benefited from ZIRP is in the area of auto loans where the borrowing continues. Low rates and long term loans have fueled a buying spree among those consumers with the lowest credit quality. But even that appears to be coming to an end. If this sounds similar to the US housing bubble and subsequent crash you would be right.
The other side effect of ZIRP has gone relatively unnoticed by the mainstream media, many advisors and most investors. That other side is gold. But the public is starting to awaken.
One of the arguments against holding gold as an investment is that it paid no interest. Even a little bit of interest is better than nothing and by holding gold, an investor would forfeit that potential interest.
With no interest being paid on savings, investors are beginning to look at alternatives and gold is one of them. There are a variety of ways they can participate in this market from buying physical gold in the form of coins or bars to buying physical gold backed ETFs, shares in gold mining companies and a variety of other ETFs and mutual funds that invest in mining companies.
A new and innovative option has also emerged. It is gold backed savings account offered by Gold Money. You can learn more about the gold money savings account at www.goldmoney.com.
As governments continue to lose control of their currencies by constantly lowering interest rates, a savings account that is backed by a physical asset has also become appealing to more and more people.
The zero interest rate policies undertaken by many governments and their central banks has led to unintended consequences such as stagnant economic growth and the search for alternatives to traditional investments.
So far gold has been a benefactor. Whether that continues or not remains to be seen but there are many choices available to investors who want to pursue this option.