The Sorrow and the Pity of Another Liquidity Trap: Brad DeLong

Brad DeLong gives a good explanation of why interest rates will remain low as long as there is slack in the economy.

Paul Krugman’s definition of a liquidity trap is, purely and simply, a situation in which conventional monetary policy — open-market purchases of short-term government debt — has lost effectiveness.

Krugman said back in the 90s that even if the Fed printed lots of money (not really, of course; we’re talking mainly about bank reserves), it would not be wildly inflationary. And he also said that even very large government deficits would not cause soaring interest rates as long as the economy stayed depressed.


About James Crist

How do we stop America's decline? The country is in trouble and we can all feel it. Where did we go wrong? How do we fix it? We now have an auction-based government, for sale to the highest bidder. Politicians have become nothing more than corporate whores and pawns for the rich. If we want our representatives to represent us, let them get their campaign money from us, their constituents. We have to amend the constitution to get the big money out of politics.
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