KRUGMAN IS PUZZLING ABOUT WHY CHEAP MONEY HAS NOT CAUSED HIGHER RATES...
THE ANSWER IS THE DEPRESSION...
STOCKS ARE A LOSER...THEY ARE WAY OVER VALUED FOR A DEPRESSION ECONOMY...
THE UNDERLYING ECONOMY IS STILL IN A DEEP DEPRESSION...WITH NO EASY WAY OUT.
IF STOCKS SOLD FOR WHAT THEY WERE WORTH...WITHOUT FED INTERVENTION...IN AN OLD FASHION NON-BUBBLE ECONOMY...WHERE "RETURNS" WERE DEMANDED IN THE FORM OF YIELD AND DIVIDENDS...BONDS WOULD REFLECT THAT
BECAUSE:
MONEY HAS TO BE "WORTH SOMETHING" FOR THE ECONOMY TO FUNCTION PROPERLY...THERE IS NO SUCH THING AS "FREE MONEY"...FOR FREE YOU GET GARBAGE...
FREE MONEY IN A DEPRESSION IS LIKE FEEDING A DEAD HORSE...IT COSTS YOU NOTHING...BECAUSE THE HORSE CAN'T EAT...
BONDS COULD BE ALLOWED TO ADJUST...AND RATES WOULD GO HIGHER...IF STOCKS WHERE PROPERLY PRICED...
A 1% RETURN ON BONDS...IS BETTER THAN TAKING A 10% LOSS ON STOCKS...
STOCKS ARE RISKY...BONDS ARE NOT AS FAR AS RETURN OF CAPITAL GOES...THAT IS ALL YOU NEED TO EXPLAIN THE CURRENT PRICES OF PAPER ASSETS...
IN A DEPRESSION RETURN OF CAPITAL...NOT RETURN ON CAPITAL...IS THE BEST YOU CAN EXPECT.
