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Creativity  ·  3046 days ago  ·  link  ·    ·  parent  ·  post: Admit it: you know nothing about economics.

    When people are talking about a country in a liquidity trap, they're talking about whether that country has freely flowing cash in its economy

Yes. But what's important is the implication : when you are in a liquidity trap, you can't use only monetary policy as a lever for growth.

On this graph (it represents the key interest rate from the FED, BCE, BoJ), you can see that the FED (in red) lowered it's interest rate after the crisis. They wanted banks to lend again and it worked. We are still in 2015 at a very low rate, and the US is currently in a liquidity trap and it has been the case for 5-6 years.

Janet Yellen (FMI's director) should announce today an increase of this key interest rate (how much the banks pays the FED to have money) : the US should step out of the liquidity trap today.

The US government used all sorts of policy to get the economy back up. Now that it seems stable, the FED is stopping the quantitative easing (a monetary policy which is not supposed to happen where you buy, among other things, private securities) and wants to increase the interest rate to be able to target the 2% inflation rate.

It's not hard to understand and I'm not trying to complicate things (but I could be clearer). But wanting to explain the whole thing in one sentence where you don't explain the difference between fiscal/monetary policy and how the key interest rate from the FED impacts the economy and could lead in what is called "liquidity trap" doesn't let you understand what a liquidity trap is and what it means for the economy.