Liquidity Trap Thinking

I was thinking about where to put what little money I have the other day, and I realized that my thinking was textbook "liquidity trap" thinking.

My money is sitting in a savings account making 1% APR.  There's no risk to it, and it's available at practically a moments notice.

I think: Maybe I should invest it in some high dividend companies.  They give dividends every quarter that are greater than 1% that I'm getting in my bank account.  I could minimize transactions fees by buying an ETF.

But...the stock prices on these do vary with the market.  What if the economy gets worse (can you imagine?) and I'm on the streets looking for a new job.  My money that I would rely on to pay for groceries and the mortgage is now worth less than when I put it in because the stock's value has declined.  Same goes for investment grade bonds - could have a higher return, but the value on the secondary market can vary based on the day-to-day investment community concerns.

Nope, better keep it in that savings account.

Now, imagine the millions of people like me having that same conversation with themselves, and that is a liquidity trap.  The federal reserve has lowered interest rates down to the floor, they are, in fact negative in real terms.  The goal is to get people to take that money out of their savings account and go do something with it: start a business, invest in a company, or buy something!  But uncertainty about the future kills our motivation, and the fact that everyone is in debt up to their eyeballs means our perceived risk is high.

Historically the only cure for this is for either the government to fill the gap with public works projects, or for the central bank to aggressively pursue inflationary practices.

The reasoning behind the inflationary bit is to make me think "if I just leave this money in my 1% savings account, and I believe that will be at 5%, I'm losing that purchasing power fast.  I might as well go blow it on Camaro ZL1 and enjoy my ride into bankruptcy."  Then everyone goes out and spends their money and jump starts the economy.  Of course, we could just convert it to Gold or Euros, or Swiss Franc's, thus undermining the Fed's strategy, but that's a discussion for another day.