A Cunning NIRP Plan

Ben Bernanke: We need to create a wealth effect. Now! Any ideas?

Sensei Bobo McChuckles: What if we eliminated one of the ways investors/savers could easily increase their wealth?

Ben Bernanke: I suppose we could set short-term interest rates to zero, but what good would that do? How would eliminating one way to easily increase wealth make everyone wealthier?

Sensei Bobo McChuckles: It would convince some to embrace riskier assets more prone to momentum. Momentum is good. As money piles in it would encourage even more money to pile in. It would create a momentum-based virtuous cycle of paper wealth creation!!

Ben Bernanke: Genius! Any risks?

Sensei Bobo McChuckles: Well, there would be some downside if momentum ever started to falter.

Ben Bernanke: How bad could it get?

Sensei Bobo McChuckles: Virtuous bubble cycles depend on ever-increasing confidence. Let's just say that our conversation should never be made public.

Ben Bernanke: It would look bad if the markets knew that I was consulting a clown?

Sensei Bobo McChuckles: Exactly.

Several years pass.

Janet Yellen: We need to create a wealth effect. Now! Any ideas?

Sensei Bobo McChuckles: What if we eliminated one of the ways investors/savers could easily avoid losing money?

Janet Yellen: I suppose we could set short-term interest rates below zero, but what good would that do?

Sensei Bobo McChuckles: I'd explain but I'm actually off to perform at a birthday party in Tokyo for a little girl with big dreams. Dogs! Ponies! Clowns!

Janet Yellen: A Japanese dog and pony and clown show?

Sensei Bobo McChuckles: Exactly. Would you believe that some people actually wonder how I became a Federal Reserve financial consultant?