The Federal Reserve performs many services to the consumers and businesses of the country. One of these services is to establish monetary policy. In recent years the Federal Reserve has established multiple layers of Quantitative Easing (QE) and Zero Interest Rate Policy (ZIRP). The Federal Reserve has many reasons for maintaining ZIRP.
The effect of current monetary policy is the incentives and benefits it creates. One of the goals of monetary policy is to stimulate the economy. With interest rates at near zero percent the incentive is not to save, but to spend. Some believe that the Federal Reserve is penalizing retirees or those saving for retirement by incentivizing young people to buy houses, cars, and other discretionary goods. In order to get a decent return on investment those close to retirement are forced out of relatively safe treasuries. Many are invested in high yield dividend stocks or are maintaining a capital allocation in growth stocks that is higher than recommended for the age group. The long term effect on the economy is a topic of debate as is the effect on senior citizens and the behavior of young consumers.rnrn rnrnThe debt vs. savings aspect is interesting in that high leverage is being encouraged because interest rates are so low. Consumers can now afford a bigger car and a bigger house because of interest rates. Why not get a little more house than you need because you can flip it in 10 or 20 years for a lot more? Need new furniture and appliances to go with the house? How about 0% interest for 36 months? The effect of this is less income for saving, but when you”re only getting 2% on a 10 year treasury why bother saving?
The effect of more spending rather than saving changes incentives for financial crime. Everyone loves to hit a home run. As the US economy was coming out of the recession many companies such as Amazon were beating earnings by a huge amount. Call options trading at .50 prior to earnings popped up to $13 the day after. If you were in the right place at the right time that was a home run. This is why people love the derivatives market. Home runs are also popular with salespeople. Why chase a $500k deal when you can close a $10M software deal? It is more likely to hit singles than home runs, but everyone loves the long shot, even though slow and steady wins the race.rnrn rnrnCybercriminals also want to close big deals. A savings account with $100k is worth more in terms of time and hassle than picking off many people who only have a few hundred in their account. This will have a profound effect on the face of financial crime. Consider a millennial worker who is highly leveraged. On pay day one could look at their checking account pending transactions and see a direct deposit for X and a set of ACH transactions the same day for 90%+ of their pay going to mortgage, car, credit cards, etc. Contrast this to a baby boomer who is afraid of the stock market and is holding cash in a savings account to maintain liquidity. Who is going to be the windfall profit for the cybercriminals? The millennial is going to have very little cash on hand and would be a target of convenience if the criminals already have access to the bank account. The boomer has more to lose, but also consider that this demographic is more prone lose money to charity phone scammers than hackers. One way of keeping others from stealing or sweet talking you out of your money is to spend it within seconds of it arriving. Because there will be little in the way of cash available the only viable target will be credit cards where consumers have zero financial risk from fraudulent or criminal activity. This approach pushes risk away from the consumer public and back on the banks that are issuing credit cards. Mission accomplished.
A strategic goal of information security is to reduce the incentive to commit cybercrime. Federal Reserve monetary policy has accomplished consumer protection via ZIRP, leading to a change in consumer behavior, leading to a near zero risk of cybercrime against consumer bank accounts by decreasing incentive for targeting cash. Millions of dollars in spending on boxes in data centers have not stopped cybercrime, but have contributed greatly to climate change. The Federal Reserve may have solved a large segment of consumer cybercrime problem that the Information Security Industrial Complex has yet to scratch.
