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Liquidity Trap

Paul Krugman writes:

How close are we to a liquidity trap? - Paul Krugman - Op-Ed Columnist - New York Times Blog: When short-term interest rates are close to zero, open-market operations in which the central bank prints money and buys government debt don't do anything, because you're just swapping one more or less zero-interest rate asset for another.... Normally it doesn't matter which short-term interest rate you choose.... But right now we are in a situation in which Treasury bills yield considerably less than the Fed funds rate... banks' nervousness about lending to each other, even in the overnight market... Treasuries -- not Fed funds -- are the interest rates to look at.

As of 10:38 this morning, the one-month Treasury rate was 0.57; the three-month rate was 0.825.

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