Liquidity Trap, HAs Caught The Fed

Larry Summers Admits The Fed Is In A Liquidity Trap

“A liquidity trap is a situation described in Keynesian economics in which injections of cash into the private banking system by a central bank fail to lower interest rates and hence fail to stimulate economic growth. A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war.

Signature characteristics of a liquidity trap are short-term interest rates that are near zero and fluctuations in the monetary base that fail to translate into fluctuations in the general price levels.” 

Importantly, this evidence is mounting that the Federal Reserve has now become trapped within this dynamic.

The important point is that, for the first time that we are aware of, someone (of apparent note to the status quo) has verbally stated that we are indeed caught within a liquidity trap.  This has been a point that has been vigorously opposed by supporters of the Federal Reserve actions.

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