Brad DeLong gives a good explanation of why interest rates will remain low as long as there is slack in the economy.
Paul Krugman's definition of a liquidity trap is, purely and simply, a situation in which conventional monetary policy — open-market purchases of short-term government debt — has lost effectiveness.
Krugman said back in the 90s that even if the Fed printed lots of money (not really, of course; we’re talking mainly about bank reserves), it would not be wildly inflationary. And he also said that even very large government deficits would not cause soaring interest rates as long as the economy stayed depressed.
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