One way to visualize the damage from ZIRP is to recognize that the spread between real and nominal interest rates is analogous to the spread between rates on default-free and risky debt.

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The answers to those questions can be found by examining whether the rise in nominal rates is also accompanied by rising real interest rates and if the rise in the dollar is due to a decrease in its supply.

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By suppressing nominal interest rates and pushing real rates into negative territory, the Fed has engaged in financial repression.

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Real interest rates are basically a function of economic growth and the difference between real rates and nominal rates rooted in inflation calculations.

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It seems to be evaluating past monetary policy in terms of the change in nominal rates (which rose in 2004 and 2005) rather than the level of real interest rates (which was low from 2002 through the first part of 2006).

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This means that unless investors are repeatedly surprised, inflation will lead to higher nominal interest rates as debt is refinanced, and in turn to an unchanged real debt.

ECONOMIST: Economics focus