Bernanke makes it official. We are Japan.

Commentary: Race to zero didn't work then, won't work now

SAN FRANCISCO (MarketWatch) -- It's official. We are Japan.
At least when it comes to monetary policy. The Federal Reserve's decision to slash interest rates by a half percentage point to 1% on Wednesday to help boost the economy was snubbed by the stock market, even though it had demanded the cut like a petulant child for more than two weeks. See full story
There was nothing the Fed could do, and it's likely the European Central Bank will fall in line next week, as well as the Bank of Japan on Friday. Central bankers know they need to show coordination and the ability to do something -- anything -- in the teeth of this bear market.
But Bernanke is quickly running out of monetary bullets, with the risk of having to take the extraordinary step of someday lowering interest rates to zero just a bank run or two away right now. Japan, which spent five unproductive years at zero between 2001 and 2006 before boosting to a half percentage point, is now talking about a quarter point cut and possibly a return to zero, even though it didn't work last time. See full story.

The economic theory behind zero rates, called quantitative monetary easing -- a term so heinous it isn't recognized by my computer's spell check -- allows a central bank to run monetary policy by focusing on money supply instead of the cost of the money, i.e. interest rates.

It also means that Joe the Plumber and his elderly parents would get nothing on their savings account or certificates of deposit, which so many people depend on for their fixed-income lifestyles. How's that for an invitation to go out and spend?

Arguably, it was a dramatic easing of interest rates after the tech bubble collapsed that plunked us into the systemic soup in the first place, allowing people to take out mortgages at ridiculous rates and Wall Street to make a killing by packaging the mortgages and playing various rates off each other. But it won't work this time around. Nobody's lending, and nobody is borrowing.