The Fed kept rates near zero from 2008 to 2015, and again from 2020 to 2022. While necessary initially, the prolonged low-rate environment after 2012 arguably inflated asset prices, encouraged risk-taking, and worsened income inequality (the rich own assets; the poor own labor). By 2021–2022, this "bad" manifested as 9% inflation – the very thing low rates were meant to prevent.
Once rates hit zero, they cannot go much lower (negative rates have limits). In a severe downturn, even a zero rate may be too high (the "liquidity trap"). Here, the "dire rate" is not a choice but a constraint. Japan from 1992 to the present has suffered from a chronic inability to set a sufficiently negative real rate, leading to decades of stagnation.
What makes an interest rate "bad"? Interest rates are the price of money: the cost to borrow it and the reward for saving it. A "good" rate balances the needs of savers, investors, and consumers, typically aligning with the natural rate of growth (the "neutral rate" or r*). A bad rate diverges sharply from this equilibrium. the dirate bad
The ECB raised rates in 2011 to fight energy-driven inflation, even as periphery economies (Greece, Spain, Italy) were contracting. That was a classic "dire rate bad" – it deepened the sovereign debt crisis, nearly broke the euro, and caused a double-dip recession. The ECB had to reverse course, but the damage was done.
By 1320, Dirate Bads were being produced in small potteries across the Hanseatic League. Every household that could afford one wanted the miracle crock. And for the first two weeks, miracles seemed real. Cabbage stayed green. Herrings held their shape. The Fed kept rates near zero from 2008
But week three brought the change.
It started as a film—a faint, iridescent sheen on the brine. Then came the smell. Not the sharp, pleasant tang of fermentation, but something deeper: a barnyard funk crossed with wet wool and forgotten grief. Finally, the sound. When you opened a Dirate Bad after four weeks, witnesses reported a soft, deflating hiss, as if the vessel itself was sighing in disappointment. “The stench struck me as a mace
One English cook, writing in a 1348 manor roll, described opening a Dirate Bad of pickled eggs:
“The stench struck me as a mace. The eggs had turned to grey jelly and bore the visage of tiny, angry saints. I crossed myself thrice and threw the whole bad into the river. The river boiled for an hour.”