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From Wikipedia: "A liquidity trap is a situation described in Keynesian economics in which injections of cash into the private banking system by a central bank fail to lower interest rates and hence to stimulate economic growth. A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war. Signature characteristics of a liquidity trap are short-term interest rates that are near zero and fluctuations in the monetary base that fail to translate into fluctuations in general price levels."

In short, as interest rates are already zero, they can't be cut any further. Hence something else is needed to stimulate the economy, like infrastructure spending or quantitative easing (and the efficacy of the latter is somewhat questionable in my opinion).

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Mar 18th, 2012 at 01:49:25 PM EST
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