[palmer]

A liquidity crisis is caused when the demand for money is greater than the supply and people/banks hoard money and don't spend/lend it. That's what causes velocity to contract and growth to slow. The solution is more liquidity until there is excess liquidity and people/banks are willing to take risks with excess capital.

The big banks are taking risks with their excess capital but only short term risks (i.e. carry trade). The solution to the current economic crisis is not "spend/lend" but simply "lend" and long term lending is basically dead. There is no way that long term lending will revive until the Fed stops printing money and handing it out to politicians and banks.

"Printing money" is not, in and of itself, inflationary.

No, but nor does it lead to any confidence in the long term value of the currency, hence it deters long term investments.

[Wyatt's Torch]

Lack of long term demand for lending is driven primarily by uncertainty. See the article I just posted from MAPI that describes it. Very timely.