I think you know the conventional answer. If you are pulling WAY back just in case, and other individuals are doing the same, and businesses are hoarding cash rather than investing, then the number of dollars that people want to save exceeds the number of dollars that businesses want to invest.
The first thing that gov't tries is to force down the interest rate even faster than the market would do it, to reduce the benefits of saving and increase the benefit of investing.
If that's not enough, the gov't soaks up the extra saving by borrowing it, and directly "creates jobs" with various spending programs.
That's the conventional wisdom, and Obama is going the conventional route. The problem is that we're not really sure that it works, and we certainly aren't sure exactly which type of spending is most effective. We've only had one other really big case like this, we think it worked to end the Depression in the 30's, but one case and some theory isn't a proof.
In the short-run, deficit spending in recession improves GDP. But the government interference has a nefarious long-term effect, and may prolong recoveries. I find it rather amusing that the most severe recession in US history is seen as evidence of successful government policy. I would look toward "easy" recessions in 1921 and 1946 for evidence of good policy.
Malinvestment takes years to manifest itself in national growth rates. If the US spent $1T on pyramid building, jobs would be created instantly. But in the long-term, these pyramid builders would have otherwise found other, more productive jobs. The taxes used to finance the pyramids would have been used to make other investments. And in 20 years, we're left with
1) pyramids,
2) $1T in extra debt
3) Larger reserves of dollars overseas, since foreigners won't want to import pyramids
4) Worst of all, we'll have millions of pyramid builders with entrenched interest who will petition the government to keep building pyramids. These people will be experts at pyramid building, a skill not highly valued in the marketplace.
I'm exaggerating, because not all government spending is a complete waste like a pyramid. The decisions made by Congress are just relatively poor investments, or distortions in markets (subsidies) designed to create a favored outcome. Some of the government actions are defendable (eg. gas taxes may offset some of the externalities that drivers place on others), while others are designed to benefit one group at the expense of everyone else (eg. farm subsidies benefit farmers at the expense of consumers).
To tie everything back to ER, we should all be alarmed at the growing demonization of the wealthy. Very few of us on this board were involved in a giant Ponzi scheme (I hope), but the political climate is very tumultuous for ALL those that have built up wealth. I worry about the long-term institutionalization of further grabs of our savings. Right now, we have proposals for capital gains tax increases. We must stay vigilant.
To quote Rahm Emanuel, Obama's chief of staff:
You never want a serious crisis to go to waste. This crisis provides the opportunity for us to do things that you could not do before.