The interest rate on ten-year US Treasury bonds has risen almost a full percentage point in the last six months, to 2.72%, implying a loss of nearly 10% in the price of the bond. And the recent rise in long-term rates is just the beginning of an increase that will punish investors who are seeking extra yield in long-term bonds.

Federal Reserve Chairman Ben Bernanke has been struggling since his May 22 testimony to the US Congress to deliver a clear message about the future of Fed policy. Two months later, financial-market participants remain confused about what his message means for the future of US monetary policy and market interest rates.

The Federal Reserve should begin now to end its program of long-term asset purchases, writes Martin Feldstein." It should not wait for the improved labor market that it predicts will come later this year, an improvement that is unlikely to occur. Instead, the Fed should emphasize that the pace of quantitative easing must adjust to the likely effectiveness of the program itself, and to the costs and risks of continuing to buy large quantities of bonds."

"The Federal Reserve recently announced that it will increase or decrease the size of its monthly bond-buying program in response to changing economic conditions. This amounts to a policy of fine-tuning its quantitative-easing program, a puzzling strategy since the evidence suggests that the program has done little to raise economic growth while saddling the Fed with an enormous balance sheet."

Long-term interest rates are now unsustainably low, implying bubbles in the prices of bonds and other securities. When interest rates rise, as they surely will, the bubbles will burst, the prices of those securities will fall, and anyone holding them – including banks and other financial institutions – will be hurt.

Raising revenue without increasing tax rates requires eliminating or reducing the subsidies in the U.S. tax code. Such subsidies, for things as varied as hybrid cars and increased health insurance, are really the government spending through the tax code. That is why they are officially referred to as “tax expenditures.”

One frequently hears two key arguments from economists who dismiss the fear of a run on the dollar: the dollar is a reserve currency, and it carries fewer risks than other currencies. Unfortunately, neither argument is persuasive.

Putting a cap on tax expenditures—those features of the tax code that are a substitute for direct government spending—can break the current fiscal impasse and prevent the dangerous explosion of the national debt, writes Martin Feldstein. "If a cap is combined with entitlement reforms, the government will also be able to reduce tax rates and increase some spending to accelerate the economic recovery."

Japan’s new government, led by Prime Minister Shinzo Abe, could be about to shoot itself in the foot. Seeking to boost economic growth, the authorities may soon destroy their one great advantage: the low rate of interest on government debt and private borrowing. If that happens, Japanese conditions will most likely be worse at the end of Abe’s term than they are today.

The Federal Reserve is heading in the wrong direction. What the central bank describes as "unconventional monetary policy" is creating dangerous bubbles in asset markets that will lead to higher future inflation and is supporting the explosive growth of the national debt. Its new "communications strategy" will, moreover, only further confuse markets.