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Liquidity Trap in Japan and the U.S.

03/17/2008

With the demand curve for money horizontal further increases in the money supply do little to lower interest rates, or as in the current situation where the interest rates in the US are virtually at zero so that further increases in the money supply do little to stimulate the economy. As unemployment is growing and the financial sector weak, Bernanke and the Fed see other ways in which quantitative easing helps a recovery. Here Chritopher Woods compares today's situation in America to that of postbubble Japan. He says America is already in a liquidity trap. And the regulatory forbearance to cleanup the banking mess is similiar to that in postbubble Japan when it took the government years to get up the will and strength to straighten out the mess including breaking up the banks that are too big to fail.

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Opinions Are Split on Fed Policy Move

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Japan Shows Trials of Escaping a Post-Bubble Funk

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Yes, We're in a Liquidity Trap

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Fed Darkens Its Outlook but Plans No Changes

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John B. Taylor: Monetary Policy and the Next Crisis

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Fed chief Bernanke urges better financial regulation to prevent crises

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Japan Central Bank Chief Wades Into Politics

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