From this year’s Nobel Laureate in economics, Paul Krugman:
This is the thing I’ve been afraid of ever since I realized that Japan really was in the dreaded, possibly mythical liquidity trap. You can read my 1998 Brookings Paper on the issue here.
Incidentally, there were a bunch of us at Princeton worrying about the Japan problem in the early years of this decade. I was one; Lars Svensson, currently at Sweden’s Riksbank, was another; a third was a guy named Ben Bernanke. I wonder whatever happened to him?
Seriously, we are in very deep trouble. Getting out of this will require a lot of creativity, and maybe some luck too.
As this goes on, I think we’re going to be hearing a lot more of the analogies to Japan circa 1993 that I wrote about last week.