The Japanese economy has been stuck in a liquidity trap for more than two decades now. Between 1992 and 2014, Japan’s real GDP grew on average less than 1 percent per year and CPI inflation hovered around zero, with prolonged periods of falling prices. The combination of low growth and no inflation led to Japan’s nominal GDP increasing by only about 2 percent in 23 years. During the same period, nominal GDP in the United States nearly trebled. The liquidity trap is a condition that originates from a shortage of demand. At the prevailing real interest rate the supply of savings exceeds the demand for loans and, ... (full story)