I want to talk about this too. Here's a post I made in your BFI thread:
- People don't want to lend money because of possible defaults on what turned out to be bad loans.
- Interest rates go up.
- Central bank floods market with cheap cash.
- 4. ???
- 5. Profit!
Is the ??? step "people go back to making bad loans?"
I'll add to it by saying that maybe it would be a good thing if rates did tick up significantly. People are obviously realizing that cash was too cheap and are demanding higher rates. The central banks' rebuttal to this seems to be "no, you're all wrong, please to be continuing to make bad loans." The entire idea of a "right" price for money being set by a central authority is as ludicrous as the "right" price for wheat, oil, or toothpaste being set in the same manner.