---btw we oughta assume here fixed G and X of course
so we can call this only the market systems "internal lines "---
ie the horizontal line measures corporate net investment and household net savings at
the corresponding vertical line that gives the coupled nominal rate
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so now put these embedded lines in motion
these two "lines" are constantly in shift mode all on their own
right or left
all the time
lets imagine at time T(1)
the spontaneous action might favorable
to a recovery
in that case in the interval between T(0) and T (1)
the FE savings " line" shifts to the left FE
and the investment "line " shifts to the right
and that at time T(2) it has shifted in the same set of directions only more so
ie the spontaneous recovery rate is accelerating
that is the picture we are drawing for ourselves in the media these days
but the two "lines" still cross below the zero interest rate line
ie credit policy is still impotent
the liquidity trap
-----------------------------
pk:
"One way to think about macro policy in a liquidity trap
is that it’s about trying to reduce that incipient surplus,
say through government spending to make use of the excess savings"
so look at the zero bound nominal rate line
the nominal policy rate floor
which exists because
pk:
" rather than lend at a loss people can just hold cash."
so the fed which by hypothesis can only lower the interest rate
can't do anything more at point zero
" So we have an “incipient” excess supply of savings"
.
the gap at the zero line in the grapgh above
between the zero rate FEsavings and FE investment
measures the size of the FE FISCAL deficit ( times its multiplier of course )
---------------------------------------
if the actual fiscal deficit isn't big enough( or the multiplier assumptions are too large )
the excess savings/inadquate investment gap in part closes
as pk suggests ... " via a fall in income "
some combo of disinflation and real output contraction
and as disinflation hits its own zero barrier
the point where inflation transitions to deflation
the income adjustment gets to be all spontaneous real contraction
unless the system can deflate itself
which our system seems unable to do
---------------------
today spontaneous motions are alleged to be as suggested above
ie
the FE gap is closing all by itself
how fast ?
well faster then ....last years bottoming out interval
then again G is still falling and whither X
uncertainty remains signifigant
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is that
pompously broad enough for ya comrades??
