One of the most debate topics in economic circles these days is whether or not US will enter into a Liquidity Trap. The Liquidity trap is a special macroeconomic situation propounded by Nobelist J.M. Keynes which explained the great depression in US in 1930s... This is a situation under which the borrower do not wants to borrow and lender do not wants to lend despite a 0% (or almost near) interest rate in the system. So any liquidity infusion in the system is not used and hence the growth remains stagnant... You must be wondering that it seems plausible for the lender not to lend as 0% interest does not gives him any incentive to lend but what about the borrower he can easily borrow for free of cost. So why is he not borrowing...?
This is because when he borrows, he is borrowing a purchasing power (lets say of 10 chocolates) but given the slowdown their is negative inflation and the prices are falling and when he repays the loan after a year he is actually returning the purchasing power of 11-12 chocolates. This signifies positive real interest rates despite a o% nominal interest rates. Hence the borrower is not willing to buy.
The lender if he invests in bonds and lends money to the borrower at o% interest rates, sees a upward rising forward curve and hence he is sure that as the interest rates will rise in future the bond prices will fall leading to further losses, hence despite a positive real interest rates the lender is unwilling the lend.
Thus the liquidity remains in the system and it acts as a trap. The only thing that could revive the economy is the fiscal stimulus and so I would strongly believe that Mr. Obama to think on these grounds and revive the world....
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