I don’t think it’s a liquidity trap - there’s plenty of money sloshing around. Banks have tons of money and they’re probably parking it in treasuries. That’s why interest on treasuries is so low.
I believe it’s more a credit crunch. You constantly hear of small businesses complaining about not being able to get a loan. And I have personal experience as to how difficult it is for a real estate investor to get a loan. And yet you see ads from banks offering loans at the lowest interest rates in history.
So how does one explain this seeming contradiction? My theory is that the reasons more loans aren’t being made is because the qualifications for a loan have become much more stringent (probably what they should have been all along) - taking millions of people and thousands of business out of the game.
It’s going to take a while for the economy to adjust to these new “settings” and find its new “equilibrium”.
I don’t know how much of this new “qualification requirements” are dictated by the fed and how many are the banks themselves. Maybe that is one area where the fed could to do some “easing” while still being mindful of not going back to the bad old days of giving a loan if you fogged a mirror.
“I believe it’s more a credit crunch. You constantly hear of small businesses complaining about not being able to get a loan. And I have personal experience as to how difficult it is for a real estate investor to get a loan. And yet you see ads from banks offering loans at the lowest interest rates in history.
So how does one explain this seeming contradiction? My theory is that the reasons more loans aren’t being made is because the qualifications for a loan have become much more stringent (probably what they should have been all along) - taking millions of people and thousands of business out of the game.”
What you described is exactly the definition of a liquidity trap. When banks up qualifications, are more risk averse and sit on the money, it doesn’t matter how much money is thrown at them monetarily. Since they will just sit on additional Fed dollars, inflation goes nowhere. In a liquidity trap you can drop trillions from the sky into banks and its like trying to push a string, it goes nowhere, just bunches up.
It is a really shitty place to be since monetary policy is essentially dead leaving only fiscal policy. But that too is dead since the prospect of any more stimulus programs in tax cuts are DOA by democrats and any works or infrastructure programs are DOA by republicans.