How bad is the mortgage crisis going to get?

Pretty good interview with Krugman.

Our main bone to pick with him: where is your confidence in the Federal Reserve coming from? None of the "creative" emergency facilities have stopped the train from derailing. And How is lowering interest rates to zero going to help things? You acknowledge Japan tried a zero interest rate policy (ZIRP), but obviously that didn't solve the problems. You acknowledge the Fed eased during the Depression, but obviously monetary policy didn't end the depression. You're ignoring the second half of each of these "natural experiments".

The issue isn't whether the Federal Reserve is (or is) not clueless: it is that they are impotent. Monetary policy can at best solve short-term liquidity problems, not economy-wide solvency problems. And the incipient inflation caused by modern central banking bakes malinvestment and credit bubbles into the cake.

You acknowledge the massive economic inequities in this country, but then give a green light to Fed policies that destroy the value of the dollar, ensuring the only ones who make and keep capital are those who speculate with the "smart money" on Wall Street.

We can only reconcile these contradictions by observing that Krugman, as a professional economist, sees the Fed as the highest post for himself to aspire to.

Remember folks, Krugman is still the financial establishment. Similar to John McCain criticizing only the execution of the Iraq War, Krugman is saying "this system is fine, you're just not DOING it right."