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koganbotMy understanding (or misunderstanding) of what economists like Krugman are saying these days is that the way to get the economy out of its deep mess - or at least lessen the impact of the recession and shorten its duration - is to convince people to throw money around. This is difficult when everyone has an incentive to cut back. So a stimulus needs to be aimed at poor people, who, being poor, will have to spend what they get, just to live, and on various public works, where money will get spent on employees and contractors and materials.
In any event, here's a post by Krugman about the liquidity trap (which I understand/misunderstand to be where the Fed's lending rate is already so low that making it lower won't stimulate much lending, and banks aren't ready to lend no matter how much money is printed by the gov't). I think he's saying that the Fed needs to commit to keep things free and easy for a long time (back in '98 he'd written that the Bank Of Japan had to "credibly promise to be irresponsible," and that's what he's recommending the Fed do now) so that financial institutions won't just hoard their money in anticipation of future stability. (Am I getting the argument right?)
In any event, here's a post by Krugman about the liquidity trap (which I understand/misunderstand to be where the Fed's lending rate is already so low that making it lower won't stimulate much lending, and banks aren't ready to lend no matter how much money is printed by the gov't). I think he's saying that the Fed needs to commit to keep things free and easy for a long time (back in '98 he'd written that the Bank Of Japan had to "credibly promise to be irresponsible," and that's what he's recommending the Fed do now) so that financial institutions won't just hoard their money in anticipation of future stability. (Am I getting the argument right?)
