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Re: Keynesian economics is not what many think 

By: tkc in ALEA | Recommend this post (1)
Sat, 13 Aug 11 5:34 AM | 40 view(s)
Boardmark this board | The Trust Matrix 		Msg. 05612 of 54959
(This msg. is a reply to 05610 by Cactus Flower)
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Thx CF, I've read the articles you posted but it still seams very counter intuitive to me. Printing money is inflationary, while lowering interests rates encourages investment. Thus hording money while it could be invested to earn the higher returns caused by inflation seems kinda dumb. You write "People's behaviour changes when money loses its value (sic inflation). They will tend to hold onto it. So you end up with a liquidity trap." My experience is contrary to that. I studied economics when inflation was consistently ~6% and savings or investment (savings yielded 3% and the stock market was depressed for years) and then we entered "stagflation." People bought "today" because it would cost more tomorrow. Later, Pres. Ford passed out WIN buttons, "whip inflation now." Then Paul Volker as Chairman of the FOMC broke the back of inflation. My Ivy league education tuition cost $875 my last semester, what's it now? $15,000?
?
Please understand, I'm not arguing, I don't yet "get it." How can increasing the money supply (QE1 &2), providing tons of stimulus and now lowering the interest rates be deflationary? Maybe I'm too dense or not nuanced enough. Thx CF


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The above is a reply to the following message:
Re: Keynesian economics is not what many think
By: Cactus Flower in ALEA
Sat, 13 Aug 11 4:13 AM 		Msg. 05610 of 54959

And this one explains just how much of the world economy has the same problem.

http://krugman.blogs.nytimes.com/2010/03/17/how-much-of-the-world-is-in-a-liquidity-trap/

Companies are hoarding and not employing because unused money is increasing its value (ie deflation) relative to other assets. The Fed is trying to get people to think this isn't such a good idea. So they promise low interest rates, print fresh money (QE) etc.

We're in a trap created by excess responsibility.

Philosophically, this is great fun. Practically-speaking, it sucks. It would be much better if companies put their money to work instead of improving their balance sheets further.

Reading folks like ktc or listening to Republicans, the Fed's policy appears to be working a little bit.


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