Just Dropped In (To See What Condition My Condition Was In)

Wikipedia entry on Liquidity Trap.

Inflation is very low.

IMF says world economy "very far from any kind of double dip."

About Federal Reserve Bank policy, Krugman blogs

... inflation is pretty clearly below target, and given the huge excess capacity, clearly trending down. So even if the Fed only cares about inflation, it’s falling short.

Why? Partly because there are some Fed types -- both regional bank presidents and members of the board -- who are constantly predicting inflation, no matter what. If you look at the minutes from the April FOMC meeting (pdf), you see that two bank presidents predicted above-target core inflation next year, presumably because they still think that deficits and money creation must be inflationary, even with persistent high unemployment.

But they are a minority. What I suspect is going on is something that was all too obvious in Japan, more than a decade ago. Nobody can be sure how well a more aggressive monetary policy would work; there’s a chance that the Fed would buy up long-term bonds, raise its target inflation rate, and see the economy slump all the same. And that would be embarrassing. So the Fed sits on its hands, which means no risk of failure.

Of course, the Fed’s peace of mind comes at the expense of millions of unemployed workers, and the country quite possibly slipping into a long-run deflationary trap. But hey, gotta safeguard the institution.

The Federal Reserve will release minutes from its June meeting Wednesday. Thursday morning the Senate Banking Committee will hold hearings on Obama's 3 nominees to the Federal Reserve.