Bankers' strike

A responder to Krugman's post "Corporate cost of borrowing"writes:

Sigh. Yes, things are getting uglier. And, Paul, with all due respect and admiration, you have been missing the point by failing to analyze where we are in the crash-contraction-depression dynamic. You are running ahead to policy from, say, 1934.
We currently have a bankers’ strike (perhaps a tragic “I can’t help myself” strike, but still a management strike), which is acting exactly like a huge set of bank runs. The depression comes later; this is the contraction. Policy for the depression is not yet relevant; nor is a Keynes-Friedman debate.
Again, the FDR-era RFC physically replaced recalcitrant bank managers with Federal officers. Why is this not on the table? Couldn’t we cushion the contraction to some important degree by not choking off viable businesses access to capital? Remember, just-in-time finance was not in vogue in 1930. Our contraction is different. The bank strike kills good businesses; the demand recoil fully ices the deadly cake.
These bank managers–or their Federal agent replacements–simply have to write the “Yes We Can” lending memos or this is going to get much, much worse. Will some (some, a few, not “all” as some hysterics think) of the loans go bad? Of course, but so what? Compared to a further cascade of catastrophic failures it is simply not a big deal.
Economists fighting an irrelevant civil war while ignoring live policy options from history: Tell me how this is helping anything.
No offense I hope. And best of luck to all in these times.
–Jim in MN

Price-level targeting

Real rates are not declining inspite of the Fed's best effort. The high real rate is troubling to many, including Krugman and Mankiw. Mankiw proposes a way for the Fed to manage expectations, in the hope this will lower the real rate.

Here is one idea. Suppose the Fed cuts the federal funds rate once again to, say, 25 basis points. More important, at the same time, the Fed announces a target path for the price level as measured by the core CPI. The price path might be, say, an increase of 2 or 3 percent per year. The Fed promises not to raise the fed funds rate over the next 12 months and, after that, will keep the funds rate at that low level as long as the price level is significantly below its target path.The credibility of the promise is paramount. To get long-term real interest rates down, the Fed needs to convince markets that it will vigorously combat deflation, and that if deflation happens in the short run, the Fed will reverse it by subsequently producing extra inflation. A credible promise of subsequent price reversal after any deflation ensures that long-term expected inflation stays close to the inflation rate implied by the Fed's target price path. Monetary economists will recognize that this policy is price-level targeting rather than inflation targeting.