All those years ago when I did macro-economics for the first time, one thing that we learnt about was the Keynsian concept of the liquidity trap. This came about where no matter how much you lowered the interest rate or expanded the money supply (=liquidity), there was no impact on economic activity.
This came about because, among other things, plans to save were greater than plans to invest. In these circumstances, economic activity would contract no matter the expansion in liquidity. The only solution was fiscal policy, an expansion in real spend.
I think that this where we are now.
I had no idea when I penned this simple post this morning just how right I appear to be. Listening to the news tonight - it is now 10.50 -the continuing financial meltdown is flowing straight across into the real economy. In Australia, consumer confidence is down 11 per cent.
In all this, there are rich pickings for some such as the Commonwealth Bank's acquisition of BankWest.