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Wednesday, October 29, 2008

Another step closer to a liquidity trap - for nothing

Today the Fed acted to cut the Fed Funds rate to 1%. As I've expressed in the past, at best, this will likely be ineffectual.

I agree with economist Bernard Baumohl who said:

"The latest Fed move is not going to hasten the economic recovery by a single day or accelerate the cleansing of bank balance sheets, what is needed more than anything else at this stage is simply patience."

I agree with him that the problem lies not with the cost of obtaining a loan (the demand side), but with the inability / unwillingness of banks to lend (the supply side) in this time of great debt and uncertainty.

1 comment:

Adam Smith said...

Prepare for the New World Economic Order

Interest Rates [Credit] are the Cause and Consequence of the Explosion of Income/Wealth Disparities and, Hence, of the Inherent Instability of this Economy:

The Ominous Keynes' Liquidity Trap.
The Origin of Economic Chaos.

Everyone Need an Economy, Don't They?

There Is One Solution That Works:

A Credit Free, Free Market Economy:

The New World Economic Order.


The Only Goal of 1776 - Annuit Cœptis is to Implement It.

They Can Transfer Their Assets & Forget Their Liabilities.

Anyone Can Join But Still Needs to Ask for It.

http://www.17-76.net/

The Purpose Is to Provide Both a New Deal and a New Game.

It is NOT to Fix This Economy Which is Already Beyond Repair.

The Intention Is to Create a New Economy
With the Assets of the Old One Without its Liabilities.

Why Not Insure Against the Worst Case Scenario?