Tuesday, February 17, 2009

If You Don't Spend Your Money....

Vox finds a cheery essay.

The standard response to recession is to cut interest rates.... Japan was a bit slow about cutting interest rates after the bubble burst, but it eventually cut them all the way to zero, and it still wasn't enough. Now what? The classic answer, the one that has been associated with the name of John Maynard Keynes, is that if the private sector won't spend enough to maintain full employment, the public sector must take up the slack

And in fact Japan tried...The trouble was that the programs didn't seem to get enough bang for the yen.... In short, the attempt to jump-start the economy with deficit spending has reached its limits. So now what?...

The answer is that an economy which is in a liquidity trap needs expected inflation - that is, it needs to convince people that the yen they are tempted to hoard will buy less a month or a year from now than they do today

--Paul Krugman

Wowsers, bowser. It's like a Circuit City giftcard. Your money will have an expiration date.

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