How Bad is the Economy?

Here's evidence that it is pretty rotten. This is from an article by Krishna Guha in the Financial Times:

The ideal interest rate for the US economy in current conditions would be minus 5 per cent, according to internal analysis prepared for the Federal Reserve's last policy meeting.

The analysis was based on a so-called Taylor-rule approach that estimates an appropriate interest rate based on unemployment and inflation.

A central bank cannot cut interest rates below zero. However, the staff research suggests the Fed should maintain unconventional policies that provide stimulus roughly equivalent to an interest rate of minus 5 per cent.

There have been some quasi-humourous suggestions by economists that you could create a negative interest rate effect by creating a government policy where paper money in circulation could be periodically destroyed to make the value of holding the currency drop (see here). You could run some kind of lottery every few months and identify bill serial numbers that were declared worthless. This would counteract the tendency to hoard money during a depression. This is effectively a negative interest rate on holding money.