Liquidity Trap

Hoplite · Post by **Hoplite** » Fri Jul 06, 2012 7:46 pm

The discussions of real estate and mortgages reminded me of the near worldwide cut in interest rates:
http://www.washingtonpost.com/world/ecb ... story.html
Even China, facing inflation, has gone the discount route. And Denmark's central bank cut interest on deposits to minus .2%, something that American banks have sought to do through fees rather than overtly through negative nominal interest rates.
So, is this a sign of a liquidity trap beginning to close shut? I wish I knew.

J_ · Post by J_ » Fri Jul 06, 2012 8:16 pm

What do you mean by liquidity trap? And why beginning to close shut?

The news sounds more to open the tap of liquidity further.

dragoncar · Post by **dragoncar** » Fri Jul 06, 2012 8:21 pm

http://lmgtfy.com/?q=liquidity+trap&l=1

jennypenny · Post by **jennypenny** » Fri Jul 06, 2012 8:34 pm

Previous discussion on Keynesian economics...

viewtopic.php?t=1513
Wiki on liquidity trap...

http://en.wikipedia.org/wiki/Liquidity_trap
@dragoncar--That site always sets off our security system here. Not sure why.

J_ · Post by J_ » Fri Jul 06, 2012 8:45 pm

I dont buy keynesian theories. CBanks dump interest for other banks to save and help them. There is no liquidity trap.

dragoncar · Post by **dragoncar** » Fri Jul 06, 2012 8:58 pm

Alarms and armed guards and everything?

jennypenny · Post by **jennypenny** » Fri Jul 06, 2012 9:06 pm

Haha, yup. Although almost anything google-related sets off the self-destruct mechanism on the DoD stuff.

secretwealth · Post by **secretwealth** » Fri Jul 06, 2012 9:32 pm

"I dont buy keynesian theories."
But we've seen a liquidity trap for the past three years. No matter how much Central Banks lower rates and inject cash, it isn't encouraging growth because the global economy is still shocked from what the subprime mortgage crisis did.

George the original one · Fri Jul 06, 2012 9:49 pm

> So, is this a sign of a liquidity trap beginning to

> close shut?
Even if it is, what would you do about it?

dragoncar · Post by **dragoncar** » Fri Jul 06, 2012 10:25 pm

Prepare for slow economic growth?

Hoplite · Post by **Hoplite** » Fri Jul 06, 2012 10:28 pm

@George too,

Good question! On the policy level, about all I could do is write my representative and senators, which is not very efficient to say the least (futile comes to mind). Otherwise what Jacob suggested in this post-
Personally, I consider the retirement part and even the financial independence part to be MINOR aspects of ERE and the efficiency, adaptability and self-reliance to be MAJOR parts of ERE.
viewtopic.php?t=2564#post-34917
And be on the lookout for bubbles--the trap, once clogged, is bound to create backflow

Jim Rogers advocates becoming a farmer and/or investing in farmland, partly due to the advanced median age of farmers (late fifties in the U.S.) During an interview, when asked what to do if you didn’t want to be a farmer, he said that if you don’t want to be a farmer, you should acquire the Lamborghini dealership nearest to the farmers. The Greeks are apparently taking the farmer route,

http://www.bbc.co.uk/news/world-europe-18592929

but most waited too long and didn’t save/acquire enough capital.

secretwealth · Post by **secretwealth** » Fri Jul 06, 2012 10:36 pm

"Prepare for slow economic growth?"
What would you say is the best investment in such a market? I'm thinking corporate bonds.

jennypenny · Post by **jennypenny** » Fri Jul 06, 2012 10:38 pm

>>Prepare for slow economic growth?
But how? DH thinks owning land is paramount (not real estate--land). I like having a big pile of cash, but it's like water in a swimming pool that slowly evaporates over time. Stocks might not go anywhere for another 5-10 years. So what does that leave? Commodities? Owning farmland and looking for commodities around the world to invest in sounds an awful lot like the colonial era.

secretwealth · Post by **secretwealth** » Fri Jul 06, 2012 10:43 pm

Commodities won't do well if there's slow inflation and lower demand due to low growth.

Ego · Post by **Ego** » Sat Jul 07, 2012 2:37 am

Which asset classes did well in Japan since the mid-1990s? Perhaps that may hint to which ones will do well in the U.S. in the next decade. That said, Japanese investors had the ability to look beyond their borders to find investments that were not influenced greatly by the Japanese economy. U.S. investors have greater difficulty finding international investments where a sluggish U.S. economy does not drag down the investment itself.

dragoncar · Post by **dragoncar** » Sat Jul 07, 2012 3:22 am

"I like having a big pile of cash"
That's the trap.

J_ · Post by J_ » Sat Jul 07, 2012 8:35 am

Jipeeee no economic growth!! would be nice and wise.

And now steer to shrink....

Dragline · Post by **Dragline** » Sat Jul 07, 2012 12:39 pm

Over the course of the last couple decades, the best places for a Japanese investor would have been cash, gold and markets other than Japan until recently. They have experienced classic deflation.
Now forget "Keynes", since that's become a meaningless label of "economic theories we like" or "economic theories we hate", and focus on a real live Keen for some cogent explanations of debt deflation and other things that happen in the real world. Timely interview from yesterday:
http://www.youtube.com/watch?v=dsCzqqvI ... re=g-all-u

J_ · Post by J_ » Sat Jul 07, 2012 1:12 pm

Thanks for the link, at last an original thinker, who demasks the majority of the so called economists (better to say eco comics).

akratic · Post by **akratic** » Sat Jul 07, 2012 3:11 pm

Japan 1993 to 2008