Maybe gross (and his ilk) was correct on those frequent easy parts when nearly everybody got it right and roubini with few others got it right on those rare hard parts.
Shillin against the shills is me.

The world central banks, working in concert, have significantly expanded the money supply across the board for years and liquidity keeps looking for a home. Much of it into bonds. That is why Long term yields are dropping. There is so much liquidity (thank you Alan and Ben) it has to go somewhere. Seems reasonable to believe that is also why the major US equity averages continue to defy gravity in the face of certain US recession. The conundrum is really about long term rates dropping, due to excess liquidity, in the face massive currency devaluation (money printing.)

Yes, the Fed does buy and sell treasuries and monetatize a portion of our debt. If you study Ben and IMF statements, it's probably a good bet they also intervene in both the real estate and equity markets, although it's through more indirect means, than outright purchase by the Fed.

I'd also make the the case that Long term interest rates are unimportant at this point. Home owners neeed lower short term rates to refinance the adjusting ARMS. That will buy them and the Fed more time.

Setser, while a great blogger, has been sooooooo wrong this cycle about the extent to which the dollar should have fallen and interest rates should have risen. He's trying a bit too hard to rationalize his view, in my opinion.

It's not merely whether the Fed is cutting (or increasing) short-term rates. It also needs to signal whether it is willing to keep those rates down (or up) for a significant time. If the Fed made it clear that it will keep short-term rates above 5% for two years, you can be sure that the 2-year rate would go north of 5% (and probably the 5-year as well).

One way central banks can make their intentions clear is by past history - a central bank that is calm and deliberate in setting rates will have more impact over longer rates, because the market will have fair confidence that a low short-term rate now will not suddenly become a high short-term rate next year. A central bank like the Greenspan Fed, which treated rates like a yo-yo (higher today, lower tomorrow) will necessarily dissipate this kind of credibility. So the Fed needs to jawbone - we will keep rates low! we will keep rates high! This eventually worked when it was cutting rates, but on the way up, the market already doubts the Fed will keep rates up, hence long-term rates are going down rather than up.

In brief, the Greenspan Fed has created addicts for cheap short-term credit. The addicts believe the Fed isn't going to cut them off cold turkey because of the cost to the economy, so it believes the Fed will keep the credit coming. It may well be right.

The Fed has no choice but to lower rates....the dollar is unimportant ...they have made that clear