So how much unemployment and shrinkage in GDP should we be willing to suffer to see if your idea is a good one?
I'm not sure to be honest, and Bernake would have to have huge balls to do that. Even myself armchair reserve chairman here.. its scary even thinking about it. My biggest fear is that the big money center banks have to be able to survive, or at least a couple of them. Which hopefully it will be citigroup as I bought shares in them mid-last week! Thinking once the weak die, the few big banks left standing should be able to charge fat spreads.
If the system is so bad it can't survive, then we might have to cut rates. My problem thinking about that seriously is I don't see how lower rates would get the foreign investors and americans to invest. So the solution then would appear to me to go for a Japan style... Massive, massive government borrowing.. and I would personally add fed governmetn printing money.. devaluing the currency seriously. For example if the USD fell 50%, a lot of manufacturing would be very attractive here. Why if you are in some third world country buy an imported Chinese car, when you can buy an American for almost the same price, yet American relatively good quality.
But I think the market would have problems with no actual savings coming into it, just new cheaper debt, rolling over older more expensive debt. But then those walking dead companies would seem to me to kill the pricing pressure of the healthy.
The point in this article that lowering the interest rates tends to be correlated with a rising dollar.. is a fascinating point. But I would say isn't that symptomatic of less new dollars coming into circulation aka less borrowing. The US actually needs our dollar to fall in value not rise! Well sorry to ramble on, but its all very complex and inter-related. Bernake is clearly the man of the hour for these next few months at least.