Considering that quantitative easing is effectively the same as an interest rate cut below a zero bound, the yield curve is very steep even with 10-year yields just below 2%.

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It is unnatural to have interest rates close to zero and to distort the yield curve by pegging longer-run bond prices at artificially high levels and suppressing yields.

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But what we can be sure of is that the peak of the Rahn Curve is much closer to zero than to where we are now.

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Pegging the federal funds rate close to zero for another three years and twisting the yield curve to lower longer-term rates will continue to misprice credit, penalize saving, and encourage risk.

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The original theory underlying the Rahn Curve assumed that as the size of government increased from zero, supplying law and order and some basic services, economic growth rates would increase until government reached some optimal size.

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Calabrese says that many poisons follow, instead, a U-shaped curve: The death rate goes down as the dose climbs from zero to a certain small amount, what you could call the optimal exposure.

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