Today on his blog ,"The Conscience of a Liberal", Paul Krugman cheers Benny the Wanker and the Feddies for slashing interest rates and emphatically recommends more. Low interest rates didn't get us into this mess and they are completely appropriate to get us out Krugman opines. I say opines because he makes no argument. He sets up a strawman and knocks it down. He is most certainly not a liberal in this stance. He is quite simply a supporter of the "criminal" behavior which got us here.
Interest rates are ridiculously low if the lender is forced to lend money at a rate which does not include adequate return for risk of default and for inflation. At 1%, a rate which Krugman cheers, there is neither. The lender is swindled here, forced to lend its deposits as quickly as possible to generate sufficient income to pay its bills regardless of risk. Twice threatened the lender must make poorly qualified loans and perhaps go out of business when the loans are defaulted on, or hold its money and go out of business because it cannot generate enough income to pay its bills.
Faced with this situation, lenders created the "criminal" loan-bundling vehicles, the creators of the sub-prime crisis, in order to survive by passing the "criminally" mandated, uncompensated risk on to others.
Krugman thinks this is just wonderful. I think Krugman is more than just wrong. I think he is intellectually dishonest here. He knows better.
By the way, don't look for cogent comments to his blog entry. The people that control those censor and/or delay comment until it is no longer useful.