Punch line: One reason the Stimulus was, at best, marginally successful … and, why Son-of-Stimulus is unlikely to spike the economy … is what economists call the liquidity trap.
Translation: people paying off debts and saving for a rainy day … just like they’re supposed to.
Econo-journalist Robert Samuelson summarizes the situation as follows …
Since 2007, households have lost $7 trillion in wealth, mostly from lower home and stock prices.
To restore that wealth, many Americans are saving more, spending less and repaying debt.
That’s why the past year’s continuing massive stimulus (huge budget deficits, low interest rates) didn’t do more for economic growth.The answer, I think, is psychology.
Small changes in precautionary behavior by anxious consumers and companies offset stimulus.
Suppose, for example, consumers raised their savings rate by three percentage points; that would neutralize three quarters of Obama’s program.
The surprise and brutality of the financial crisis left a powerful legacy of risk aversion.
Companies — like consumers — have become defensive. They accumulate a cash hoard against unknown threats.
Our political leaders have also compounded the caution and fear; indeed, government policies sometimes cause unwanted behavior.
The liquidity trap, among other reasons, is why O’s proposed $450 billion debt-financed slush fund is a bad idea.
The Homa Files 
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