Can anyone defend ZIRP going into 2013?

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Why is Bernanke still executing ZIRP, despite all its known corrosive effects on the wider economy?

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I'm very curious what you believe these known corrosive effects are. You picked out one indicator for your point, why not look at the outflows from equity mutual funds? Why not look at shaky new orders and backlog? What about the coming austerity that will hit aggregate demad? Housing is starting to finally rebound but you are ignoring the fact that other parts of the economy are still fragile.

After the QE4 announcement, nobody was surprised with the outright treasury purchase program, but most were surprised with the inflation and employment thresholds (which the Fed will take a great degree of lattitude with as Bernanke indicated in his press conferences). It was the Fed's way of adding volatility back into the market, and it worked if you look at normalized swaption volatility across tenors. This is a very new Fed with a new way of conducting policy, they can control risk in the market by controlling volatility. When you have temporal language (rates low till mid 2015), it sucks out volatility but having less "set in stone" thresholds add volatility, and from volatility comes risk then return. The 5-year yield is already up 16 basis points this month, this steep curve can allow investors some pretty good roll-down into the area the Fed is controlling.

It's all about controlling the amount of risk in the market, and the Fed is now comfortable enough that they'll start injecting risk little by little. I wouldn't pay attention just the basic ZIRP, I'd pay attention to how the Fed communicates ZIRP as what their current policy and focus is.