WILL POWER REPORT: THE LIQUIDITY TRAP
Nothing but the truth!
By Will Power
August 19, 2011 (San Diego)--Here's the definition: The liquidity trap, in Keynesian economics, is a situation where monetary policy is unable to stimulate an economy, either through lowering interest rates or increasing the money supply. Liquidity traps typically occur when expectations of adverse events (e.g., deflation, insufficient aggregate demand, or civil or international war) make persons with liquid assets unwilling to invest.
Liquidity traps have many advantages for the rich. Lack of liquidity makes it simple for Big Investors to squeeze margins and drive small investors under. Lack of liquidity forces unemployment higher, forces jobs overseas, and keeps small businesses from hiring.
What causes a liquidity trap? The Bush Tax cuts, which enriched the investors, made policies for the working class suddenly seem 'socialistic". But the rich, who are sitting on piles of cash, will not spend until they can force down ALL tax rates, including those for Unemployment, Social Security , and Medicare.
Obama's cave-in to the Tea-Party in the recent crisis over the debt ceiling will not improve liquidity. If anything, the cuts in Federal Spending will increase the unemployment rate and prolong the recession.
Not since the Dred Scott Decision has Radical Republicanism made such a vociferous and apostate minority into a powerhouse of reactionary revolt against democratic bipartisanship.
The rich, who now have 90% or the available wealth, want the last ten percent that keeps the working poor alive. But that 10% is what keeps the other 90% of the working poor alive. There is no more liquid wealth to suck up without killing US citizens by starvation, unemployment, and lack of health care.
Will Power is a retired history teacher and creative writing instructor. The opinions in this column reflect the views of the author and do not necessarily reflect the views of East County Magazine.