Have you noticed? Stocks don’t go up anymore unless they announce a multi-billion dollar buyback program, and then the gains don’t last. What’s worse, it should be realized by investors that these buybacks will need to be increasingly curtailed as stocks fall with the financialized economy so dependent on asset prices now. So while the high flyers like Amazon (AMZN) are still able to tap the credit markets to continue the Ponzi, as the rot of the collapsing colossus (better know as the economy) continues to spread, these types will be forced to cease this insanity as well, and then we see the true meaning of the term ‘liquidity trap’ applied to the stock market.

Definitions of the term first coined by Keynesians have changed throughout the years, but the basis of the condition is money printing becomes ineffective in stimulating the economy, where in a ‘conventional sense’, we are already there. This is of course why the economy continues to be increasingly financialized, meaning increasingly desperate measures become necessary to get people to invest / spend money. Negative rates are being attempted right now, but as such measures continue to fail, it will soon be realized you can’t taper a Ponzi, and that what is needed is QE for the people in order to delay wholesale collapse a few more years. (i.e. because of hyperinflation.)

Because the bankers aren’t (completely) stupid, they know that if you give the people money they will spend it unlike greedy rentiers / oligarchs who will use the free money to squeeze unsuspecting lower classes. They know that QE for the people will eventually bring untenable price increases in scare resources, however it appears this is what we are going to get if Bernie Sanders continues to dominate the Presidential election scene. And make no mistake about it; this is a revolution on the part of disenfranchised young people. So unless they completely rig the election (even the bought and paid for Superdelegates can’t stop him), expect big change next year. (i.e. this is what the surge in gold despite its rigged condition is telling you).

Returning to the above, in more recent years, as theory becomes reality and the excesses of prolonged neo-Keynesian economic policy around the world are seen, the definitions of the term ‘liquidity trap’ have morphed to adapt to conditions and attitudes, where Cullen Roche has done an excellent job of delineating this in the attached. The first quote in the attached highlights the concept of diminishing returns, and the proverbial ‘pushing on a string’ in terms of conventional monetary policy once interest rates hit the zero bound in a deflationary environment, and the second highlights the need for new alternatives, as follows: