No one seems to be writing opinion pieces quite the way I would, so I decided to do it myself.

The name? Taverns are places where one goes to discuss the interesting events and things in the world, so this is my tavern.

I will offer my views on politics, economics, and whatever else strikes my fancy.
I will occasionally publish the entire article from another journal for purposes of causing discussion.

 

The Liquidity Trap or Why Lower Interest Rates Won't Cure the Recession

I was going to post a blog referring to Krugman's article on the liquidity trap (remember the IS-LM curve from macoreconomics?), discussed it with Syniel, and then he got to it before I did. So go read his. Inflation or Liquidity Trap?

Also, this CAN DEFLATION BE PREVENTED? This relates deflation to the Liquidity Trap.

The short description is that you can increase the money supply by lowering the interest rate. This is a quick way of 'fine tuning' the economy when it starts into recession. However, when the interest rate gets very close to zero, then when people get more money they have no incentive to invest it because the return is not significantly different from simply holding it as cash, and the default risk of investment in bonds, whatever, is still there.

The Bush administration is listening to politicians, not Economists, about solutions to the economic situation. The last of the original economic team bush brought in two years ago just resigned (Daniels at the Office of Management and Budget.) Apparently they can't find people who will tell them what they want to hear - unlike the analysts at the CIA, NSA, etc.
posted by Richard at 11:22 PM