ZIRP distorts price signals throughout an economy.
Starting with asset prices and asset pricing, ZIRP creates not just a moral hazard by allowing firms to borrow at low rates to buyback stock (thereby boosting EPS and distorting that important price signal) but also factors prominently into asset valuation models artificially lowering the discount rate (which has a multiplicative and not a linear effect in valuation) to distort asset prices with follow-on effects for M&A and resource allocation decisions throughout the economy.
ZIRP just throws the cat among the pigeons. And so long as everyone is dancing to the music, it creates a game of chicken whereby everyone knows it will end badly one day, but everyone is also planning on being the first out the door when the music stops.
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