1. Because (this is a subtel but hugely important point) of the word credit in the traditional sense of “trust”. There are multiple equilibria. One of them is a collapse in trust, the spiral of deleveraging and universal insolvency (in nominal money terms). QE pushes the system towards the other equilibrium.

2. Real assets won’t have infinite values. A hypothetical asset that produces infinite stream of real income would (assuming this income stream comes at a risk premium lower than the real rate is negative). But such assets don’t exist. The Samuelson example of levelling the hill to make the railroad save energy that Bernanke cited is a good one — what are the odds that this railroad transport service will be needed infinitely? Zero.

3. Other than data problems (growth came in health and education — cost+ types of industries where the outcomes are not observable) there is also no functional link between real rate and economic growth. You can have all growth accrue to innovators, not savers.

4. Unclear how this relates to the “negative rate” idea.

5. That real rate to end borrowers staying positive is exactly the reason there hasn’t been any real recovery.

Krugman derides the deflationists, he says the financial crisis is 4 years behind us, but his policy makes perfect sense to someone who thinks the financial crisis hasn’t ended at all, but is merely being forestalled by QE. If they can get inflation high enough, the debts will become sustainable.

Their main problem is that they can’t print borrowers, and Uncle Sam is not an good investor.

No.

1. We need QE to drive long-term rates to zero quicker than what would happen without intervention.

2. There is no such thing as infinite value, so please readjust your model.

3. It may be hard to reconcile, but it must be done. Akin to point #2.

4. Not inconsistent with the Krugman/Summers model: everything is shifted a few percent down, so that the safest assets are in fact yielding negative return.

5. The data is wrong.

6. Fair point. I am that broader range.

Ask anyone in banking, the prime rate has nothing to do with anything. A more relevant point may be that real rates for Investment Grade corporate bonds have been positive.

While that is true, they have been barely positive and much lower level on an absolute level. And that is after factoring in significant amount of credit risk.