http://money.cnn.com/2008/03/14/news/economy/krugman_subprime.fortune/index.htm?postversion=2008031705 What can Fed chairman Ben Bernanke do in terms of cutting rates? You wrote on your blog recently, "Keep cutting, Ben!"
Yeah, that's right. I'm now reasonably sure that they will cut again and again and again. A few cuts of 75 basis points and we'll be down to zero. And there's a pretty good chance that we're heading to zero, and that there's going to be a Japan-style ZIRP, zero-interest-rate policy.
Has that happened in the U.S. before?
Not since the 1930s. They didn't have the Fed funds target rate back then, but effectively we had a zero-interest-rate policy for a good part of the '30s. If the Fed responds this time with as much cutting as it did in the last two recessions, we get to zero. And then the problem is, What if that isn't enough? And there's a pretty good chance it won't be.
