Pending Sales of U.S. Existing Homes Decline by Most in a Year

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9. The purpose of the low rates is to create inflation

We do not have artificially low rates. They are actually artificially high because we are up against the zero-boundary. (Meaning that the Fed would, if not constrained by the zero boundary, be cutting rates. The economy warrants lower rates. They are just not possible.)

One of two reasons Krugman (and all right-thinking economists) want more inflation is because we cannot cut rates.

Real Interest Rate = (Nominal Rate - Inflation)

When the Fed is stuck at zero:

Real Interest Rate = (zero minus inflation)

Since we cannot increase monetary stimulus by cutting nominal rates any more the only way the Fed can cut rates is for there to be inflation while the Fed holds steady at zero. If the Fed stands pat then every increase in inflation is an effective decrease in interest rates.

Inflation re-empowers the Fed's stimulative powers, which have been out of stimulus bullets for years now.

Low rates do not restrain growth. Low growth restrains rates. If the economy recovers rates (and inflation) will increase, the those higher rates will be an effect of growth, not a cause of growth.

The other reason we need inflation is that we are deeply indebted and every tick up in inflation reduces the real cost of all fixed-rate debt. That's sad for banks but good for debtors, and stimulating debtors will benefit the economy more than swelling bank profit margins will.