the.com/liquidity trap
Central banks cut rates to zero and everyone just... hoards cash anyway.
means An economic situation where interest rates are already near zero, so pumping more money into the system fails to spur borrowing, spending, or investment because people and businesses simply sit on the cash instead.
from Coined by economist John Maynard Keynes in his 1936 work 'The General Theory of Employment, Interest and Money,' where he theorized that once interest rates drop low enough, bonds and cash become nearly interchangeable — so people prefer the safety of holding cash over the negligible returns of lending it out. The 'trap' part is pure Keynes: monetary policy, normally the central bank's lever for loosening or tightening the economy, gets stuck pulling on a rope that no longer moves anything. The term stayed mostly theoretical until Japan's prolonged stagnation in the 1990s, and later the 2008 financial crisis, made it a very practical headache.
- keynes called it
- interest rates hit a floor, policy goes limp
- the fix
- spend directly, since cheap money stops working
- real example
- japan lived here for basically three decades
- the vibe
- pushing on a string, as economists love saying