Bernanke Explains How To Escape The "Liquidity Trap"

   Bernanke likes to remind everyone that he is an expert on the great depression and knows how to prevent it from happening again in the US. Apparently, he is also an expert on Japan and its struggle with chronic deflation following its housing bubble in the 1980's. In fact Bernanke wrote an article in 2000 titled "Japanese Monetary Policy: A Case of Self-Induced Paralysis," where he  lectured BOJ officials about what they could and should have done differently to to avoid a deflationary outcome. He went on to postulate that the BOJ was not trying hard enough to stimulate the economy and that 0% interest rates are just one tool to beat deflation. The Fed Chairmen even went so far as to assert that he knew how to escape a liquidity trap caused by 0% interest rates. The reason I bring this up is because it gives people a good idea of what Bernanke's next move may be. The US is dangerously close to falling into the dreaded "liquidity trap" as deflation takes hold and monetary policy loses its effectiveness.

Here are some of his suggestions to the BOJ:

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Bernanke Explains How To Escape The "Liquidity Trap"

Is The Fed Really Out of Bullets?

   A common slogan by economic pundits is that the Federal Reserve is "out of bullets" when it comes to monetary policy. They note that the Fed funds rate is already at 0% and QE 1 has failed to stimulate the economy. With banks not lending the Fed has fallen into the dreaded liquidity trap as de-leveraging mitigates expansionary monetary policy. The pundits say that we are destined to end up like Japan and stagnate for 20+ years in a deflationary environment.  What people forget is how devilishly creative Ben Bernanke is when it comes to monetary policy. But what choices are left for Zimbabwe Ben?

I have outlined a few possible tools still available to the Fed:

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Is The Fed Really Out of Bullets?