That's right Dopey. People are hoarding cash and not taking on more debt. So regardless of the amount of liquidity or the price of money (ZIRP) central bankers cannot get people to borrow when a deflationary psychology persists.
That’s because it's not about the price or availability of credit, it's all about the demand for credit. And central bankers do not create the demand for credit - they merely satisfy it. Social mood determines the expansion and contraction of credit - therefore asset prices and economic growth - not central bankers.
When people feel optimistic about the future they borrow money to speculate and invest in assets so we see an expansion of credit, a rise in asset prices, general economic growth and inflation. And when people feel pessimistic about the future they borrow less so credit contracts, asset prices fall, the economy contracts and we start to experience a general deflation. So understanding social mood trends is the key aspect to understanding these naturally occurring economic cycles.
And given the extent and the degree of outstanding debt that is yet to deflate, this deflation will be much larger than that of the 1930s. So while there remains a great deal of expectation & hope that central banks can save the day, central bankers will soon be rendered powerless.
