U.S. Liquidity Trap

As pointed out by Paul Krugman on his blog, we may be quite close to a liquidity trap (read: Japan in 90s). The closing rates today for the 1 month and 3 month t-bills are 0.26 and 0.61 respectively. This leaves the Fed with little room to cut short term rates and at this point traditional monetary policy (open-market operations) essentially stops working. With a "slowing" economy and the financial markets having liquidity problems of their own (which is largely the reason t-bills have such low yields), this is quite a worrying sign.