ZIRP is a Keynesian macroeconomics scheme for economies exhibiting slow growth with a very low interest rate, such as Japan, the United States, and soon the rest of world.
Under ZIRP, the central bank of the country involved maintains a "0% nominal interest rate" through the creation of excess liquidity. Japan has been using this policy since 1999 without much success.
In a zero interest rate environment, there world no incentive to save. The incentive would be to borrow and spend, which is how we got into our current financial debacle.
So how can more of the same fiscal and monetary policies be a solution? If cheap and easy credit got us into this credit and financial debacle, how can the extreme version of cheap and easy credit (0% interest rates) get us out?
The economy needs time to heal itself from the excesses of the housing bubble, which was induced by excess liquidity though monetary policies that were flawed from the beginning thanks to Greenspan. The last thing we need is ZIRP, which is being embraced by all central bankers, inclusive of Bernanke. The present crisis is indeed scary, but only because we are implementing the same failed policies that got us into this mess. The sooner the government steps aside, the sooner our recovery can begin.
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