But the demented yo-yo-ness of the stock market is import...

But the demented yo-yo-ness of the stock market is important because it signals yo-yo-ness in investment spending three quarters down the road. "Deserve" has absolutely nothing to do with it. And Felix asks "how long is too long for real rates to be negative"? The answer is: as long as inflation is below its target���or below what the inflation target should be���it's not too long: Felix Salmon: The Case Against Raising Rates: "Brad is right that the stock market decline is new information, but it's new information that tells us more about stock-market volatility than it does about the health of the economy. The market does not deserve some kind of Fed-dispensed doggie treat just for bouncing around like a demented yo-yo...

...Brad then says that interest rates can't have been artificially low, even when they were negative in real terms for almost a decade, because we haven't seen any inflation. He's conflating two different things. Negative real interest rates can cause speculative asset bubbles even if they don't cause inflation. Brad also thinks that "reserve and capital requirements"can "nip potential overleverage in the bud". But no one has come close to being able to apply such requirements to non-banks like private-equity shops and hedge funds, let alone corporations.

The bottom line: So long as inflation remains below its 2% target, critics will be able to make a credible case that rates should stay low. But how low is too low? (The current range of 2.25% to 2.5% is hardly high.) The question can also be posed a different way: How long is too long for real rates to be negative?...

#noted