Bernanke's Zero Interest Rate Designed To Spark Investors

Bernanke dropped interest rates virtually to zero, surprising almost everyone, as part of a very smart – albeit risky – plan to spark institutional and individual investors to get out of treasuries and into other investments. Individuals have fled to the safety of treasuries in record numbers; banks and other institutions have frozen all credit and investment activity. Benanke is betting that in short order the absence of a return from holdings in government securities will push people to start investing in alternative vehicles and institutions to start lending again.

I find his move particularly compelling from the individual investor perspective. Like many, I bought into short term treasuries and planned to continue with these for some time, given how bad things are at present. Now, with virtually no return from my treasuries, I know that I will soon start investing elsewhere – certainly in CDs, but also in munis, sound corporate bonds and the like. In fact, it was incredibly smart of Bernanke to move us all to new investments.