Bove: U.S. Enters Perfect Liquidity Trap

Friday, January 2, 2009 10:54 AM

By: Ellen Chang

The U.S. has created the perfect liquidity trap, said Ladenburg Thalmann banking analyst Richard Bove said in a research report.

When nominal interest rates are nearly zero, a liquidity trap is developed, he said. The theory was invented by John Maynard Keynes and a great proponent of it is Nobel Prize winner Paul Krugman.

“The problem arises because holders of funds refuse to use them preferring to hoard instead,â€