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overtheedge
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Drowning in a Liquidity Trap?

- Frank Shostak -

"In normal times, one would expect such an increase in the money supply to be highly inflationary and sharply raise market interest rates. That this has not happened is proof that we have been in a liquidity trap for several years. We needed a lot more government spending than we got to get the economy out of its doldrums. "

As the author pointed out Mr Bartlett is, to put it nicely, seriously confused.

Government has no wealth. Zip, zero, nada. It gains monies by printing and taxation. Printing has, does and always will impoverish a nation. More money chasing a fixed amount of goods. Those who create goods that are in demand are the wealth generators. Once government purchases those goods, they are effectively consumed. The monies spent by the government will still be held by the producer for liquidity's sake. No net change in the status of the liquidity trap.

So government takes in more taxes. The most productive bear the burden of the least productive. Government does NOT produce, it consumes. It gorges itself on the earnings of productivity.

Now kiddies here is the rest of the story. There is no liquidity trap. It is a government con-job foisted on the ignorant masses. Yes, businesses and a few individuals have liquidity. It is called savings. The government and its hired economic idiots have stated that savings creates liquidity traps.

The rest of the story is quite simple. It is NOT a liquidity trap at all. It is a reduction in the velocity of money consequently robbing the government of a substantial tax revenue stream.

In conclusion, it is a simple supply/demand relationship. Increase the supply of money substantially and its value drops prompting its use while it still retains some value. This hoped for increased use of liquidity increases velocity of money and its evil brother, the tax revenue stream. It is ALWAYS about redistribution of taxes. Tax revenues drop - redistribution drops - voter retaliation follows.
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Mr vox, the wealth generators are NOT in the financial sector.
"They have not been updating their machinery or hiring new people. Rather than creating prosperity, they have been sucking the life blood from ordinary folks."
Consumer spending is down, so you suggest the problem is NOT ENOUGH production of consumer goods?
Using the standard you presented, shame on you if you haven't divested yourself from all investments and savings. Your unwillingness to spend it all is "sucking the life blood from ordinary folks."

"An economy only works when ordinary folks actually have some money in their pockets to spend. " NO, no, no. The economy only works when the ordinary folks actually produce something. Taking in one another's laundry only redistributes wealth with a substantial handling fee imposed by taxation.

All wealth begins with accumulation of raw materials by harvesting or mining. These raw materials go for essentials and luxuries. Without demand for luxuries, homo sapiens returns to hunter-gatherers. Well, only a few actually survive that transition. If you impede the accumulation of raw materials, you impede productivity and reduce wealth generation to dead stop. That is exactly what a service industry/ bureaucracy (public/private) partnership does. There is no productivity only consumption.

At least Mr Shostak has tried to explain what a liquidity trap is. I don't think you are qualified to make any recommendation on much of anything. Of course I have no letters after my name and I've never won a Nobel. So I could be just another big-mouth with no debts and in the liquidity trap as well. Shame on me for not hiring ordinary folks ... like you perhaps. BTW at what point do you cease to be ordinary folk? Is it at 4, 5, or 6 digit annual income or is it a sliding scale based upon accumulated assets? Admittedly I haven't bought any new machinery lately because what I already have does the job just fine. But like you said, "They have not been updating their machinery or hiring new people. Rather than creating prosperity, they have been sucking the life blood from ordinary folks." No sir, supporting CNP*s sucks the lifeblood out of the economy.

CNP: curious non-producers. Effectively non-participants in an enterprise that demand the right of oversight.

Commented 3988 days ago

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Beginning of the headline :Bruce Bartlett recently lamented in The New York Times that given the current state of economic affairs we need more Keynesian medicine to fix the US economy. According to Bartlett, the core insight of Keynesian economics is that there are very special economic circumstances in which the general rules of economics don’t apply and are in fact counterproductive. This happens when interest rates and inflation rates are so low that monetary policy becomes impotent; an increase in the money supply ha... Read More

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