Money is bought and sold on two markets. O.K., this is a simplification but economists like to simplify and Wonks Anonymous is an economist. That would be the market for goods and services and the market for money to be delivered in the future.

When we sell goods or services - for most of us that would be our labor services - we buy money. Imagine that a unit of goods and services sells for p units of money. Again this is a simplification but you are talking to an economist. In the real world this unit would be some aggregate of goods and services, a more or less typical market basket. P would correspond to some kind of price index, like the CPI. The price of money on the market for goods and services would be 1/p units of goods.

There are many markets and many contracts for money to be delivered in the future. Here Wonks Anonymous will again simplify to one market, loans. We get a dollar now by promising to pay a dollar plus interest - standard economics notation represents the interest rate by the letter r. A dollar now costs
1 + r dollars delivered tomorrow.

Usually money does not stay in our bank accounts or pockets. We quickly exchange it for goods today and for claims on money in the future - this is how we save for retirement or emergencies. Investors buy our current money balances, the money that we want to save, with promises of money to be delivered in the future. They use these balances to buy goods and services. In normal times money is just a unit of exchange and all income is spent by someone so all goods and services are sold,

In interesting times - times such as these - we do hold money.

This happens when the interest rate is zero. Here the price of a dollar now is a dollar delivered tomorrow. Since life is uncertain and even the best of debtors do not always pay off we have no reason to convert the money that we want to save into promises of future payment. If you could get a dollar tomorrow by putting it in your mattress or the promise of a dollar tomorrow by lending it to Wonks Anonymous which would you take?

While the market for promises to deliver money in the future has not entirely collapsed it is in critical condition. Instead of making loans, which would put the money saved back on the market for goods and services, we and our banks and the corporations whose shares we own hold cash.

We hold cash because we want to buy goods and services in the future and, no matter how much prices of goods and services now drop, goods and services now are not goods and services in the future.

My people call it a liquidity trap.