This Is Indeed a Gloomy Day: Department of Macroeconomic Policy

In a liquidity trap conventional monetary policy--the swapping of highly-liquid bank reserve cash for short-term government securities--is ineffective because the macroeconomic financial market imbalance is not a shortage of cash relative to demand but rather a shortage of high-quality (and perhaps long-duration) assets relative to demand. The private sector's finances are sufficiently shaky that it cannot create high-quality assets--if it could, we wouldn't have a problem. (And a private...