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The basic point is that a higher baseline for inflation would make liquidity traps, in which conventional monetary policy is up against the zero lower bound, less likely and less costly when they happen.
"I really believe that the drop in housing is actually on net going to make liquidity available for other sectors rather than being a drain going forward, and that will also get the growth rate more positive," Ms. Bies told colleagues at the committee's June meeting.
The Federal Reserve can make liquidity available but it cannot lend to end users, and in fact, through stress testing and reserve requirements, seems to encourage restraint.
But they can also make liquidity vanish in an instant, making it harder for the few remaining human beings in the stock market to keep order when things go haywire, as happened on Tuesday.
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Foreign suppliers now demand cash payment upfront, making liquidity even scarcer.In this section An economy crumbles The perils of prudence In praise of pessimists Can you hear me now?
Academics such as Mr Pedersen, Lubos Pastor at Chicago's Booth School of Business and others were doing solid work on liquidity shocks, but practitioners barely noticed.What makes liquidity so important is its binary quality: one moment it is there in abundance, the next it is gone.
Meanwhile, shell-shocked credit markets are making liquidity ever more scarce.
How many businesses could have been saved by the bank making liquidity available?
Of course the Fed will make dollar liquidity available to other central banks as needed; that was never in question, because Bernanke doesn't want to be the man who destroyed the world to save a few pennies.
"The investment banks need to make the liquidity event happen".
Firms complain that the government is slow to pay value-added-tax (VAT) rebates, making the liquidity shortage worse.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com