some excerpts from his Feb 2011 newsletter:
When a heavily indebted nation pursues the ZLB to avoid painful restructuring within its debt markets (household, corporate, and/or government debt), the ZLB facilitates a pursuit of aggressive Keynesianism that only perpetuates the reliance on ZIRP. The only meaningful reduction of debt throughout this crisis has been the forced deleveraging of the household sector in the US through foreclosure. Total credit market debt has increased throughout the crisis by the transfer of private debt to the public balance sheet while running double ÎíÎñ digit fiscal deficits. In fact, this is an explicit part of a central banker’s playbook that presupposes that net credit expansion is a necessary precondition for growth.
Every one percentage point move in the weighted‐average cost of capital will end up costing $142 billion annually in interest alone. Assuming anything but an inverted curve, a move back to 5% short rates will increase annual US interest expense by almost $700 billion annually against current US government revenues of $2.228 trillion (CBO FY 2011 forecast). Even if US government revenues were to reach their prior peak of $2.568 trillion (FY 2007), the impact of a rise in interest rates is still staggering. It is plain and simple; the US cannot afford to leave the ZLB –certainly not once it accumulates a further $9 trillion in debt over the next 10 years[…]For context, if Japan had to borrow at France’s rates (a AAA‐rated member of the U.N. Security Council), the interest burden alone would bankrupt the government. Their debt service alone could easily exceed their entire central government revenue ‐ checkmate. The ZIRP trap snaps shut.