FED | Back to the Zero Bound

Michael Laurence, Alan Greenspan, President
Bill Clinton.

March 18, 2020 – On August 31, 2011 I wrote about Krugman and the Liquidity Trap. 

Back on December 18, 2008, I had reported on a speech by Laurence Meyer to the New York Association for Business Economics. 

Meyer said that after the December 16, 2008 Federal Open Market Committee statement, the FOMC could go on vacation "for two years". Nearly three years later, we were still at the zero bound. 

It's now more than nine and a half years since that report, more than eleven years since the 2008 meltdown, and we are back in the zero bound, a fed funds rate range of 0.25 percent to zero percent.

I noted in the 2011 post that Paul Krugman was one of the few people who predicted the danger of the Japanese-style liquidity trap infecting the United States. For example, there was no mention of the liquidity trap in the 12th Edition of Baumol and Blinder's economics textbook, which I was teaching from at the time.  More. 

Of course, the reason for the bond market craziness and stock market crash in March was not financial. It was the coronavirus pandemic... Right? Or are we going to find out now about  underlying problems in the financial markets that are revealed as the tide went out... The repo market? Derivatives?