Brad DeLong recently debated Alan Reynolds at Kansas State, which I’m not too interested in.
However, I was interested in this (h/t Brad DeLong):
In any bank crises, the public wants to hold more currency rather than bank deposits, and banks also want excess reserves as insurance against bank runs. Japan’s central never adequately accommodated that demand for bank reserves and currency before 2001 (if then) nor did the Fed in 1929-33. But that does not mean (as the liquidity trap implies) that monetary policy was impotent and merely “pushing on a string.”…
Reynolds was certainly wrong about Ireland, and is definitely wrong in his belief that cutting spending for its own sake is the correct policy response to a recession…but at least in his analysis of two supposed “liquidity trap” episodes, he is spectacularly right.
P.S. On Twitter, I resolved to refer to the “liquidity trap” as the “lolquidity trap”.