Liquidity Traps- Macroeconomics

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  • Published on Nov 27, 2017
  • Hey internet, this is Jacob Clifford. Thank you for watching my videos. So, what's so weird about the US economy today? Well, interest rates are extremely low, banks have extra money that they are not loaning out, and the massive increase in the money supply starting in 2008 hasn't resulted in inflation. In this video I discuss why and explain the idea of a liquidity trap.
    All data from St. Louis Federal Reserve
    fred.stlouisfed.org
    FED article about Excess Reserves
    www.clevelandfed.org/newsroom-and-events/publications/economic-commentary/2015-economic-commentaries/ec-201502-excess-reserves-oceans-of-cash.aspx
    FED article about missing inflation
    www.stlouisfed.org/publications/regional-economist/april-2014/the-liquidity-trap-an-alternative-explanation-for-todays-low-inflation
    If you are an economics student, please check out my Ultimate Review Packet
    www.acdcecon.com/review-packet
    Thanks again. You rock!

Comments • 53

  • Sara W.
    Sara W. 11 days ago

    Lmao because of the alien it's easier to remember the liquidity itS A TRAP

  • azazazazazazazaz7911
    azazazazazazazaz7911 5 months ago

    There is Inflation. All that money balloned stock market to massive fake prices.

  • Muhammad Sadiq Mughal
    Muhammad Sadiq Mughal 5 months ago

    Mr Clifford are the concepts same? I am giving Cambridge exams A2 economics?

  • Atsa Cridge
    Atsa Cridge 7 months ago

    AWESOME VIDEO MAKE MORE

  • Hugo SALINAS ALIAGA
    Hugo SALINAS ALIAGA 7 months ago

    It appears thatl interest payed to banks by the Fed on excess reserves was implemented during the last financial crisis. The video implies that banks would rather hold the excesses in reserve ti receive this interest rate and it is preventing all of thus money from circulating and generating inflation. Why is the Fed concerned they can't meet the 2% inflation requirement knowing that this interest on excess reserves is part of the problem?

  • Vatsal Nahata
    Vatsal Nahata 8 months ago

    Awesome! Love from India

  • Aman Saxena
    Aman Saxena 10 months ago

    Comprehensive explanation.. Thnxxx...

  • Christopher Engelking
    Christopher Engelking 10 months ago

    The Reserve Ratio is set at 10%, and banks have the ability to increase that reserve as much as they would like. Right now we're seeing unprecedented excess balances across all banks. Has anyone suggested that the Fed implement a ceiling (max) reserve for all private banks to push that money back into the spending stream? What would the unintended consequences of such a monetary policy be?

  • joe smith
    joe smith 11 months ago

    good video thx

  • Manman3872
    Manman3872 11 months ago

    0:00 AAH

  • Greg Conlin
    Greg Conlin 11 months ago

    If central bank buys large enough quantity of bonds (QE), won't bond yields always decrease further and therefore the interest rate.... regardless of how banks use their increased reserves? Or does liquidity trap assume central bank can't influence bond yields?

  • Sumienie Wolnościowca

    So could the inflation be delayed and lead to stagflation during crisis?

  • Cherie Minn
    Cherie Minn Year ago

    i love your very clear explanation 💯 TQ💗

  • John D'oh
    John D'oh Year ago

    banks are not lending? then who's been lending astronomical amounts of money to the corporates?

  • TheXdinosaur
    TheXdinosaur Year ago

    Great video

  • Tek Sight
    Tek Sight Year ago

    Everyone says there is no inflation, but what about in housing, equities, and cars? These all are much more expensive now on easy liquidity by the Fed. Does inflation in the price of a house due to speculation on easy liquidity not count?

  • Stuart Pollock
    Stuart Pollock Year ago

    This is one of the best videos so far! Thank you.

  • inFamousxable
    inFamousxable Year ago +39

    You are the type of teacher we need but not the one we deserve.

  • Chitra poyyamoli
    Chitra poyyamoli Year ago

    please make a video on cryptocurrencies and any crisis would happen
    due to this

  • Jon Wheeler
    Jon Wheeler Year ago +1

    Hey JC- Just yesterday, I was trying to explain to my AP Econ kids the reality of today vs. the theory of Monetary Policy. Your explanation is not only PERFECT TIMING, but (as usual) put into terms the kiddos grasp! Thanks- and keep it up!

  • Imy
    Imy Year ago +1

    You're the God of Economics! I don't have to read any book after listening to your lectures. And thanks a bunch for speaking slow. It helps non-native English speakers.

  • JDMricist
    JDMricist Year ago +1

    Dang, you lost weight! Lookin good!

  • Hypnotica
    Hypnotica Year ago +2

    Wouldn't the absence of Inflation be explained by:
    1) The fall in Velocity of money and,
    2) The fact that money that is created but is just sitting around unused has a Velocity of 0, and thus doesn't have any effect on Inflation ????
    If this is the case then I think this doesn't discredit some economic theories but actually further validates them (especially the Quantity Theory of Money). But I'm not sure if I'm missing something. I'd appreciate some help.

    • David Ryan
      David Ryan 11 months ago

      Sounds very plausible. Doesn't it just support the concept of the liquidity trap? That there won't be any affect on AD?

  • Daryl Diong
    Daryl Diong Year ago +2

    Really informative. Glad I subscribed!

  • Christopher Goolsbee

    I disagree that there is no inflation. There is just little to no inflation where the FED chooses to look. Home prices are rising, stock markets are rising, commodities markets are rising, and cryptocurrencies are on the rise. The economy has high inflation in areas they don't want us looking. The excess reserves are going somewhere... it's just not toys and sporting goods. Thanks for the video!

  • NURUL FAIEZI
    NURUL FAIEZI Year ago

    Do you have trade blocks video??

  • Adriano Mattia
    Adriano Mattia Year ago +1

    When they'll start lending that money..... :/

  • Brett F
    Brett F Year ago +1

    your best video

  • k3ys
    k3ys Year ago +1

    I also liked this video. I like how it's relevant to what's going on in current events.

  • Max Teitelbaum
    Max Teitelbaum Year ago +16

    Hey Mr. Clifford, could you make a video on the IS-LM model?

    • Robert Mainville
      Robert Mainville 10 months ago +1

      That was pretty much the subject of this video.

  • Dr. Bill Schlosser
    Dr. Bill Schlosser Year ago +3

    Outstanding discussion about what is happening and why. Consider the reality that we have already entered a recession, at about the same time China devalued the Yuan (August 2015) and we have not yet entered a recovery in full force. Passage of the proposed tax bill would help, along with passage of about a dozen bills sitting in the Senate waiting for something... We want to see a real jobs recovery.
    Most excellent video to set the stage for these discussions.

    • James Griffith
      James Griffith Year ago +1

      Dr. Bill Schlosser Awesome response! As a current econ student I really appreciate the clarification and extra information. thanks again!!

    • Dr. Bill Schlosser
      Dr. Bill Schlosser Year ago +2

      Take a look at past recessions and you will not find those criteria on each recession. Statements of recessions do not happen until after the recovery in already in full swing. The NBER makes the call to inform the people about the recession that already happened, based on Business Cycles identified by the level of business activity. Personally, I use the PPI as one of the major indicators of the vitality of the US economy. Look at how the PPI responded in all past recessions and then look at 2010 - 2016. Specifically, look at 2015 and he devaluation of the Yuan crippling US exports and creating a nexus of imports on the supply side from China. It helped businesses buy low, but employment in the US stayed at its lowest labor participation rate in memory.
      Keep looking for the NBER to make the call about the "Greater Recession". Maybe it is not as bad as some think it is? Look at the indicators.
      P.S. GDP growth is NOT one of the indicators NBER looks at to call a recession. The NBER gives relatively little weight to real GDP because it is only measured quarterly and it is subject to continuing, large revisions. They use monthly reported statistics as primary indicators.
      -Dr. Bill

    • James Griffith
      James Griffith Year ago

      Dr. Bill Schlosser Are you saying we already entered a recession? because a recession is defined as a period decreased growth/gdp; usually 2 consecutive quarters.

  • Noah Shepard
    Noah Shepard Year ago +3

    Hey Mr. Clifford, I liked this video a lot. You should also do a video breaking down the new tax bill? Thanks!

  • Gilberto Gomez
    Gilberto Gomez Year ago +1

    Excellent video Professor!

  • Diet Dr. Pepper Fan Club

    Really like this video. Reminds people that economics is a lot more nuanced than what they learn in introductory classes

  • Bryan Rothman
    Bryan Rothman Year ago +1

    Wouldn't they actually be holding onto excess reserves due to factors like regime uncertainty as well as the fact that real growth had been slowed by the FED's QE and low interest rate policies over the past 8 years?

  • Kit Wai
    Kit Wai Year ago +1

    Your explanation is actually on point!

  • Mitchel Krause
    Mitchel Krause Year ago +1

    Great video! Curious to see what kinds of sources are worth looking into to stay up to date on this circumstance.

  • Ghost Cat
    Ghost Cat Year ago +1

    At the end, it looked like you pushed yourself away haha. Anyway, thanks for this video.

  • Todd Smith
    Todd Smith Year ago

    Awesome video. Do you believe that many banks are holding so much in reserve because so many lenders were burned with NINJA loans, etc...?

  • Budai Bálint
    Budai Bálint Year ago +34

    Hey, could you make a video on cryptocurrencies and how can they affect the economy?

    • Hugo SALINAS ALIAGA
      Hugo SALINAS ALIAGA 7 months ago

      Will Bitcoin work when the power is out?

    • mecheatgood
      mecheatgood Year ago

      Central governments fear bitcoin because should they create massive inflation people might switch to bitcoin or other alternative cryptocurrenices. Which would negate the power of the all the newly printed out-thin-air currency the central bank created.

    • NURUL FAIEZI
      NURUL FAIEZI Year ago +1

      I'm excited

    • Jacob Clifford
      Jacob Clifford  Year ago +22

      Yes, that is on my list.

  • ali ahmet
    ali ahmet Year ago +9

    Hey Mr.Clifford, this is the first comment on this video, does it make this comment more valuable?

    • Kuo Yu Pao
      Kuo Yu Pao Year ago

      that implies a diminishing marginal return on all the other comments.

    • Taylor
      Taylor Year ago +2

      Until healthy competition comes in with cheaper alternatives

    • Jacob Clifford
      Jacob Clifford  Year ago +6

      Yes, totally! :)