In the 90′s Japan went through a horrific deflationary episode that kept the country with very low growth for almost a decade. Today the United States seem to experience something similar and the terms of deflation and liquidity trap of jumping back into the public. And in other posts I wrote about deflation and now I want to dedicate a few words to the concept of liquidity trap. It is available in English Wikipedia, the liquidity trap occurs when the nominal interest rate is close or equal to zero and the monetary authority is unable to stimulate the economy with the traditional tools of monetary policy. In this kind of environment people do not expect high returns in any kind of investment, so try to take your cash and avoid any investment in the medium or long term. This aversion to investment causes recessions are more severe.
This whole concept seems so extraordinary reality of the U.S. economy. Another point that is discussed through the understandings concerning the number of tools that are on the Federal Reserve to fight the ills of the economy. Greg Mankiw for the EDF still has some, but the reality is that you are much, much less tools to do a few months ago. In fact, with rates practically to zero you just need to activate the helicopter and throwing money so inorganic money to people. Obama has already shown its willingness to follow the Keynesian prescription for stimulating the economy via government spending, mainly in infrastructure and this is appropriate but the mystery will take time to lift the downcast economy estadonunidense.
