With lending still being anemic and the unwillingness of people to borrow or spend money, banks are continuing to grow their cash reserves at a rapid rate. The blog post of  Frank Shostak of The Ludwig von Mises Institute discuses an interesting dilemma that the liquidity trap is causing for some economists (it also has a good explanation of Kayne’s Liquidity trap). The Liquidity trap which according to investopedia is ‘a situation in which prevailing interest rates are low and savings rates are high, making monetary policy ineffective’. In the case of the US, since interest rates are not expected to fall below 0 it essentially renders monitory policy to be impotent.

Like Mr. Shostak,  I do not think that the liquidity trap should be something one should be overly concerned with, However  current government and monitory policy does  need to be readdressed. With the euphoria surrounding health-care legislation and the bonus structure at investment banks, people are not focusing as much on serious red flags that are being raised in regards to the economic future of this country that will have ramifications felt the world over.

The Economy