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Yachtie -> RE: Ultimately it's the democrats (1/5/2013 6:46:19 PM)
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quote:
ORIGINAL: mvc333
QE anything isn't going to fix the problem. Bernanke certainly isn't getting it.
In a liquidity trap further increases to the money supply fail to affect interest rates. That is precisely what the Japanese tried to do.
The way to combat a liquidity trap is through stimulus (and round we go with this convo)
http://krugman.blogs.nytimes.com/2012/05/17/spending-and-growth/?pagewanted=all
OMG, Krugman strikes again.
Lets begin here. QE is stimulus. Now you might wish it were more akin to the old FDR "put en to work" kind, but stimulus is stimulus.
But it's QE were getting. Keynesian economics.
Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, said investors should be alert to the longer-term inflationary risks of stimulus programs such as quantitative easing.
Now lets have some fun -
Here, perhaps you'll enjoy this. Perhaps not. Krugman's own words - (follow the links)
Does this mean that fiscal policy should be ignored as part of the policy mix? Surely not. On the general Brainard principle – when uncertain about the right model, throw a bit of everything at the problem – one would want to apply fiscal stimulus. (Even I wouldn’t trust myself enough to go for a purely “Krugman” solution). However, it seems unlikely that a mainly fiscal solution will be enough.
Yes, it is said Krugman stated that prior to changing his mind. But, wow! Perhaps he'll change his mind again?
Lets look further- Krugman himself, March 17, 2008, 10:49 am
Here’s one way to think about the liquidity trap — a situation in which conventional monetary policy loses all traction. When short-term interest rates are close to zero, open-market operations in which the central bank prints money and buys government debt don’t do anything, because you’re just swapping one more or less zero-interest rate asset for another. Alternatively, you can say that there’s no incentive to lend out any increase in the monetary base, because the interest rate you get isn’t enough to make it worth bothering.
Normally it doesn’t matter which short-term interest rate you choose — the Fed funds rate, which Uncle Ben sets, is usually very close to the interest rates on US government debt. But right now we’re in a situation in which Treasury bills yield considerably less than the Fed funds rate; to at least some extent this may reflect banks’ nervousness about lending to each other, even in the overnight market. And to the extent that’s true, Treasuries — not Fed funds — are the interest rates to look at.
As of 10:38 this morning, the one-month Treasury rate was 0.57; the three-month rate was 0.825.
Are we there yet? Pretty close.
Here's the FED's own Charles Evans -
"The U.S. economy is best described as being in a bona fide liquidity trap," and given the challenges now faced by the nation, "much more policy accommodation is appropriate today," Federal Reserve Bank of Chicago President Charles Evans said.
The money supply is being increased. One of the effects is inflation. Been to the store lately? Care to invest in sub-zero bonds?
edit: cut off all QE and soon interest rates will begin to rise as is needed. But the effect on the economy, given what has been done, will be devastating. No matter, that will happen once every dollar of injection buys no rise in GDP. We're under a dollar, somewhere[:-]
edit: from your Krugman link -
So Japan, which is spending heavily for post-tsunami reconstruction, is growing quite fast, while Italy, which is imposing austerity measures, is shrinking almost equally fast.
There's that G component again. What will happen when it ends?
The world's economies are being trashed.
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