“A senior member of the Federal Reserve has warned that the US economy is in a ‘liquidity trap’ and signaled support for more action to boost the recovery.
Charles Evans, president of the Chicago Fed, said that ‘in my opinion, much more policy accommodation is appropriate today’ because ‘the US economy is best described as being in a bona fide liquidity trap’, a point where ultra-low interest rates and high savings rates conspire to make monetary policy ineffective.
Such a move would be in addition to a fresh asset purchase programme, or quantitative easing, now under consideration.”…
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WATCHDOG: A tragedy is taking place before our eyes. Because the Republicans are erroneously vilifying the Recovery Act, Congress is afraid to provide additional fiscal stimulus to the economy, thus preventing a vigorous recovery if not plunging the country into a double dip recession and possible depression.
The economists at the Federal Reserve understand this and, out of desperation, are trying to hammer a nail with a melon! Monetary policy simply cannot work when interest rates are already approaching zero percent. Businessmen are sitting on their money, awaiting signs of a certain recovery. Interest rates are not a factor.
The only way the country exits the Great Recession is to generate jobs which in turn will generate more jobs. (The bulldozer operator and his family spend his salary, generating a ‘multiplier effect’ that puts others to work.)
The way we reduce federal deficit is to first get people back to work so they are off the dole and are paying taxes again. Under Bill Clinton, the fear was that the national debt was going to be paid off and this would bring about unforeseen economic consequences!
