ALIGN INTEREST RATES WITH DEFLATION AND A LOT OF PROBLEMS GO AWAY:

Some rays of sunshine for the economy: Good news from the retail, banking and foreign trade sectors sends hearts -- and markets -- soaring. (E. Scott Reckard, April 10, 2009, LA Times)

After months of nearly unmitigated gloom, glimmers of improvement are emerging in the U.S. economy.

On Thursday, retail sales figures showed that the decline in consumer spending that began with a miserable Christmas shopping season might be stabilizing. Wells Fargo & Co. surprised analysts by saying it expected to report a record first-quarter profit despite setting aside $4.6 billion for potential loan losses. [...]

As if to cap things off, San Francisco's Wells Fargo, the biggest bank from a state that has become a national emblem for foreclosures and job losses, stunned Wall Street by predicting its earnings would be more than twice what analysts had forecast -- a record $3 billion in first-quarter profit.

Clearly benefiting from the low interest rates engineered by the government, Wells reported that its mortgage business was booming, with encouraging news about loans to buy houses as well as a tsunami of refinancings. It also said its takeover of Wachovia Corp., the Eastern banking giant that nearly collapsed last year after heavy mortgage losses and a run on deposits, was working out better than expected.

A report that all 19 of the nation's largest banks were likely to pass the government's so-called stress tests for financial health also buoyed confidence. The stock market reacted as if the news marked a turning point for the battered banking industry, and perhaps the larger economy.