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Is there any in principle reason why interest rates could not drop below 0, at least for state owned banks? Mark Richards 23:22, 27 May 2004 (UTC)
Well, I think it is inherent in the concept of interest rates. They are "rent" on money, right - someone lends someone else money and receives 'interest' for that service. So negative interest rates would be just like someone throwing money at you to live in their appartment or someone giving you extra money for borrowing their money. However, someone who definitely knows what he's talking about seems to suggest that there is such a thing as negative interest rates. Check out Paul Krugman's article on the Liquidity Trap: [web.mit.edu/krugman/www/trioshrt.html] Cheers, User:Tmstapf
Wouldn't it just end up being a partital grant? There are many examples of govts giving grants, subsidies and tax breaks along with loans to encourage business to one thing or another. I guess this is the practical manifestation of negative interest rates. Mark Richards 15:50, 1 Jun 2004 (UTC)
In case anyone objects to the picture based on the quality or how well it illustrates Friedman's views, the scene in question is on YouTube. This is where I got my screen shot due to limited technical capabilities, but if anyone can get a better shot (other moments I would have rather used were too pixelated to see) feel free to do so. Paliku (talk) 22:41, 29 July 2008 (UTC)
The picture is almost nonsensical. It's hard to tell what it depicts, and what it depicts is a scene from a 1989 fantasy movie that has nothing to do with economics or Friedman. Also, it does not "illustrate Friedman's views," unless one thinks that Friedman advocated free money raining down from Government sources (he did not). This is trolling, and bad trolling at that. Take your editorial elsewhere. 209.193.36.155 (talk) 00:36, 13 August 2008 (UTC)
Is there a reason every article on economics has to have an "austrian" view covered? —Preceding unsigned comment added by 209.131.62.113 (talk) 00:41, 17 December 2008 (UTC)
I don't think that there is a problem with having the "Austrian School" view on the issue. But there is the problem of what the "Austrian School" view is. This material seems to be "Rothbardian" Austrian School material. And the "Rothbardians" are but one of several groups within the Austrian School and are generally considered to be the most radical in their views. --Nogburt (talk) 01:31, 11 April 2009 (UTC)
I don't mind having austrian views present as long as we follow up by posting why they are known to be wrong. For example, the Austrian view is that Ronald Reagan or George Bush would have a higher growth rate than FDR. You can see how well that turned out here: https://dddb4a4a-a-62cb3a1a-s-sites.googlegroups.com/site/thecakeparty3/home/GDP-LogoForWeb.gif
But anyway, Reading this particular article makes me feel like the entire world has gone insane. Is there not an economist we can quote that will say that Liquidity trap is not just something that happens every once in a while for no known reason and is instead the inevitable, only possible result of shifting money that would have been aimed at consumption to be aimed at capital after you pass a certain point? Surely someone has made the obvious point that capital is fighting over return, which in turn comes from consumer dollars. If too large a fraction of the revenue dollars fall outside the radius of consumption, then required capital investment approaches zero (from a required production capacity standpoint) while dollars that are aimed at financing capital investment increase past all normal limits which is practically the definition of interest rates heading to zero. Apparently even the liberals are not able to communicate that clearly, and it is profoundly disturbing that even some people who understand the problem with supply-side economics still favor supply-side stimulus in a low interest rate situation.70.113.72.73 (talk) 09:28, 30 May 2012 (UTC)
The austrian comment looks like self publicity by the book's author — Preceding unsigned comment added by 141.228.106.149 (talk) 08:34, 1 December 2011 (UTC)
The section "Macroeconomic dynamic" is gibberish for non-experts. What is "the money demand function Pr"? Is there one money demand function, which is called "Pr", or are there several money demand functions, among which this section is discussing the one that happens to be named "Pr"? What is the parameter/argument/independent variable of which it is a function? If the workers of the world unite and demand more money, does the money demand function increase? What does "the output Y" represent? GDP? Beer production per annum? And what do R, Ry and Py stand for? Finally, what is "the IS curve"? Enquiring non-experts demand to know. --Lambiam 09:56, 17 December 2008 (UTC)
The first two paragraphs provide a pretty good summary of the meaning of liquidity trap. The third paragraph, a two sentences sentence, is just sort of hanging out there, and doesn't (to me) make a lot of sense. It reads:
The liquidity trap theory applies to monetary policy in non-inflationary depressions. The theory does not apply to fiscal policies that may be able to stimulate the economy.[citation needed]
First sentence may be true, but isn't terribly meaningful without additional explanation. Second sentence seems pointless. There are all sorts of things that the theory doesn't apply to.
I'd just delete both, but before I do, wanted to make sure that these don't have some special meaning for one of the regular editors. --66.28.243.126 (talk) 03:34, 9 March 2009 (UTC)
Is this really an accurate representation of the predicament of a government stricken with democracy, or else is the above sentence written by a believer of conspiracy theories? —Preceding unsigned comment added by Shane.Halloran (talk • contribs) 19:56, 2 May 2009 (UTC)
The edit at http://en.wikipedia.org/w/index.php?title=Liquidity_trap&curid=683586&diff=296770653&oldid=296608056 of this page contains weasel words. —Preceding unsigned comment added by Shane.Halloran (talk • contribs) 18:32, 16 June 2009 (UTC)
http://en.wikipedia.org/w/index.php?title=Liquidity_trap&diff=prev&oldid=318347239 i'm not going to be bold and revert this one, though. Gzuckier (talk) 01:27, 28 October 2009 (UTC)
A civilian--an intelligent, well-read citizen with no training in economics--cannot enter into this article. There's a thorny barrier of jargon that prevents passage. No wonder the article rates a "C" for writing. Can someone please give an overview in plain language? 97.115.103.109 (talk) 06:19, 19 January 2010 (UTC)
Yes, the article does contain a ton of jargon and it also lacks references. But as a student of economics, I must attest for its significant increase in accuracy since that massive edit. Please, nobody revert the article back to its old state. As per 97.115.103.109, less jargon ridden text would be way better. --Dwarnr (talk) 23:16, 4 February 2010 (UTC)
Why does "helicopter drop" redirect here when it's not even mentioned? Did that part of the article get deleted? — Preceding unsigned comment added by 216.183.171.30 (talk) 20:28, 12 July 2011 (UTC)
Should be called 'Low interest or Zero rate trap'. ??--70.240.151.123 (talk) 22:14, 10 August 2011 (UTC)
The introductory paragraph has as its second and last sentence: "Liquidity traps typically occur when expectations of adverse events (e.g., deflation, insufficient aggregate demand, or civil or international war) make persons with liquid assets unwilling to invest."
What is the source for that statement? It doesn't make sense to me.
Now, I am not an economist, merely a retired engineer and an amateur actor. But figuratively walking a mile in the moccasins of a "person with liquid assets," I would not be deterred by mere expectation, considering the uncertainties inherent in any new investment. Absolutely the only thing that would make me "unwilling to invest" would be the absence of any opportunity for investment that might furnish a rate of return in excess of the cost of capital.
I would not object if the sentence said "Liquidity traps typically occur when the virtual absence of investment opportunities that offer a rate of return greater than the cost of capital makes persons with liquid assets unwilling to invest." I have no authority for that statement either, but it seems more plausible to me than the one in the article.
However, my only legitimate objection to that sentence is that there's no citation to support it. Marty39 (talk) 00:28, 11 August 2011 (UTC)
In the case of a liquidity trap is there an expectation that the absence of investment caused by an expectation of adverse events can in fact cause (or perpetuate) the adverse event itself? For example, if banks stop lending money because they're worried about the possibility of a recession, then that in itself could cause a recession. Similarly, if they continue to not lend, again because of worries about the economy, then that can perpetuate the recession? I was under the impression that it was this aspect of things that made it a "trap" - if this is the case then I don't think that this is reflected in the article. --Kick the cat (talk) 13:32, 26 August 2011 (UTC)
Prior content in this article duplicated one or more previously published sources. The material was copied from: A dictionary of economics by John Black, Nigar Hashimzade, Gareth D. Myles, Oxford University Press p. 265. Infringing material has been rewritten or removed and must not be restored, unless it is duly released under a compatible license. (For more information, please see "using copyrighted works from others" if you are not the copyright holder of this material, or "donating copyrighted materials" if you are.) For legal reasons, we cannot accept copyrighted text or images borrowed from other web sites or published material; such additions will be deleted. Contributors may use copyrighted publications as a source of information, but not as a source of sentences or phrases. Accordingly, the material may be rewritten, but only if it does not infringe on the copyright of the original or plagiarize from that source. Please see our guideline on non-free text for how to properly implement limited quotations of copyrighted text. Wikipedia takes copyright violations very seriously, and persistent violators will be blocked from editing. While we appreciate contributions, we must require all contributors to understand and comply with these policies. Thank you. Voceditenore (talk) 13:54, 10 October 2011 (UTC)
In the Criticisms section, it currently states: "Austrian School economists generally argue that a lack of investment during periods of low interest rates are the result of malinvestment and time preference instead of liquidity preference."
Do they argue it's a result of low or high time preference? Or neither? I'm not too familiar with this, so I don't personally know the answer to clarify it in the article. Anyone care to expand on this? Thanks. Error9900 (talk) 18:52, 15 December 2011 (UTC)
I had previously removed the content that has now been added to the "Interpretations" section. I don't have have access to FT article, but I looked at the other sources used in this section, and I don't think they are relevant here. Only one of the sources (Sumner) directly mentions liquidity traps. Most of the sources are focused on quantitative easing, which is a potential policy response to liquidity traps, but that relationship isn't made clear here and generally isn't discussed in the referenced sources. The "Democracy Now" source is clearly misused because Stiglitz never mentions liquidity traps while the text suggests he explicitly discusses them.
I think this section is extremely confusing to readers looking for an explanation of liquidity traps. Readers might be led to believe that liquidity traps are synonymous with quantitative easing. Generally the section is a confusion of quantitative easing, liquidity, and currency wars without reference to anything directly related to liquidity traps or "Interpreting" them. I am removing it again and hoping it stays removed.--Bkwillwm (talk) 21:28, 18 March 2012 (UTC)
"Liquidity trap" was first introduced by Dennis Robertson in 1926 (and not by Keynes, it's annoying !).
Is it worth including Koo's critique here? He seem's to be having an increasing influence in the theory associated with this in the context of the current economic crisis. Bradqwood (talk) 20:01, 8 January 2013 (UTC)
>In its original conception, a liquidity trap refers to the phenomenon when increased money supply fails to lower(*) interest rates.
Seriously, what the f#$@ is this even referring to? An asterisk would normally denote a note or NB, but nothing of the sort is provided! I'm removing it for now since it's redundant. -Matt (JVz) (talk) 00:26, 19 July 2013 (UTC)
The Trap is that the BANKS are holding onto cash and not lending because of their own Liquidity Preference yet the Fed cannot raise rates due to inflation fears.
Simply put, loan rates are tied to the Fed rate. The banks have been hording cash because interest rates are so low they aren't willing to loan at the low rates. That's called their Liquidity Preference, they prefer cash to the nominal interest they might earn by loaning money. They are waiting until interest rates rise. All this cash ($4T from QE1/QE2/QE3) never made it to the economy, it is sitting in bank vaults. If the Fed were to raise rates, even a little, that money would start flowing, madly, out of the banks and into the economy. When all that cash hits the economy, it will cause inflation, not just a little inflation but possibly hyper-inflation. Most economists think a rise of 25 basis points (0.25%) would be enough to start the gushing. That's the trap. Even a small rise in rates could cause hyper-inflation.
The Central Bank has caused this problem and they can't get out. They normally pull excess money out of the economy by raising rates but in this case there is too much money yet they can't raise rates - they are trapped. The Fed understands all this but most Americans do not.
There is nothing in the article about the trap? — Preceding unsigned comment added by Joenitwit (talk • contribs) 14:59, 23 September 2015 (UTC)
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There was a claim in the section on 2020 which claimed that M1 increased from $4 trillion to $20 trillion as a result of monetary stimulus. While quantitative easing did occur, about $11.5 trillion of this increase was the result of a change to the definition of M1 in May 2020. Possibly this section could be reworked to incorporate evidence from M2 or a measure of M1 that corrects for the redefinition, but as it is, it's simply wrong and doesn't belong here. The actual increase in M1 was about 33%, not 400%. — Preceding unsigned comment added by BergerCode (talk • contribs) 02:30, 10 June 2023 (UTC)
There's this sentence: "Keynesian economists, like Brad DeLong and Simon Wren-Lewis, maintain that the economy continues to operate within the IS-LM model, albeit an 'updated' one, and the rules have 'simply changed.'"
One problem is that the two economists referenced come from a prior revision, and the material that was specific to those two is now gone.
The other problem here is that when you go to the cited articles, they're misquotes. I'm not expert enough to state what's intended here. Something about IS-LM not being applied consistently. But the overall effect, as it is now, is to try to discredit an argument that's not even presented. I'm going to take it out, even though I wish I knew more so I could save those two citations. Maybe somebody knows how to fix it properly. Kyle Cronan (talk) 21:33, 21 June 2023 (UTC)