> We're basically running out of tools to combat an actual financial crisis
Not really. This was extensively explored following the Great Depression, in part by Ben Bernanke, which is how we got QE. In summary, the Fed can buy more than just short-dated government bonds.
Moreover, "liquidity trap" doesn't refer to the central bank running out of tools per se. It refers to investors calling a central bank's bluff.
A classic example is a stagflation-facing central bank cutting rates. The cut spurs inflation. Investors figure that will force the central bank's hand into a rate hike shortly. As a result, they hold.
The cut thus fails to have an impact because the bank is perceived to be constrained. That doesn't apply here.
Not really. This was extensively explored following the Great Depression, in part by Ben Bernanke, which is how we got QE. In summary, the Fed can buy more than just short-dated government bonds.
Moreover, "liquidity trap" doesn't refer to the central bank running out of tools per se. It refers to investors calling a central bank's bluff.
A classic example is a stagflation-facing central bank cutting rates. The cut spurs inflation. Investors figure that will force the central bank's hand into a rate hike shortly. As a result, they hold.
The cut thus fails to have an impact because the bank is perceived to be constrained. That doesn't apply here.