Tim Duy thinks that the Federal Reserve has backed itself into a corner. He is right that the Fed because it was independent was in a "better position to raise regulatory and supervisory roadblocks during the debt build-up compared to other, more politically susceptible agencies." But at the time the Federal Reserve did not see itself as in a much better position. As one extremely senior member of the FOMC told me in 2005: "We stand up and say: "We don't care that you lenders want to issue this mortgage and you homebuyers want to sign it, we won't let you!' and how long do we last in front of Congress?" And he calls for the Federal Reserve to declare war on all too-big-to-fail financial institutions.

I think Tim is broadly right. This was, in fact, the reason that I was calling for at least partial nationalization and the government's taking of proper equity stakes in the banks last fall. The worst outcome would have been not trying or failing to rescue the banking system. But rescuing the banking system in a way that leaves the public believing that bankers have profited and taxpayers lost--as the public now does--is also a bad place to be.

Three points to serve as background:

First of all, from the day after the collapse of Lehman Brothers, the policies followed by the U.S. Treasury and the U.S. Federal Reserve and the U.S. administrations have been very helpful. They have been good ones. The alternative--standing back and watching the markets deal with the situation--would have gotten us a much higher unemployment rate than we have now. Credit easing by the Fed and support of the banking system by the Fed and the Treasury have significantly helped the economy: have kept things from getting much worse.

Paul Krugman reads the tea leaves in what looks like the best piece of economic analysis I have read this month. When we do the things we do well, this is the kind of thing we do:

Interest rates: the phantom menace: From various bat squeaks I’ve put together a view of what I think lies behind the surprising — and damaging — deficit squeamishness of the Obama administration. So here’s what I think they’re thinking.... On the face of it, there’s no reason to be worried about interest rates on US debt. Despite large deficits, the Federal government is able to borrow cheaply.... Underlying these low rates is, in turn, the fact that overall borrowing by the nonfinancial sector hasn’t risen: the surge in government borrowing has in fact, less than offset a plunge in private borrowing.

Annual change in the U.S. federal debt-to-GDP ratio, and presidential term averages:

Source: CBO Current-Law Baseline

Ford had bad luck--his presidency coincided with a down phase of the business cycle. But other than Ford, the contrast between the Democrats and the old-style Republicans (Eisenhower and Nixon) on the one hand and the new-style Republicans on the other is quite striking.

Mark Thoma is alarmed by our president:

Economist's View: Obama's Wrong-Headed Thinking on the Deficit: Edward Harrison catches this quote from Obama....

• In the short term, we don't have a deficit problem: as long as unemployment remains highly elevated--certainly as long as the unemployment rate stays above 7%--and as long as interest rates on U.S. Treasuries stay low a bigger federal deficit is a feature not a bug: our short-term deficit problem (and the short term lasts for most of Obama's remaining term) is that the deficit is too small, not too big.

From my perspective, deciding whether to tighten or ease is easy. It involves asking and answering a few questions:

Q: What is the current forecast for unemployment? A: It is that unemployment will stay around 10% for a year or more, and then slowly decline.

For Project Syndicate:

Slouching Toward Sanity: In America today – and in the rest of the world – economic-policy centrists are being squeezed.

Jared Bernstein talks about the federal budgetary impact of the stimulus program as if it were its net "cost." It isn't.

Of course, the misinformation starts with ABC's Jake Tapper:

Ten- and twenty-year average annual real returns on equities as a function of the ratio of price to a ten-year moving average of earnings:

How we wound up with a cumulative $600 billion over three years in expansionary fiscal policy.

From Ryan Lizza (Larry Summers and the White House economic team):