1694. You have to go that far back to find a time when interest rates were lower in the UK than they are today. Ever. Voltaire was born that year, and Queen Mary II died. The new interest rate that banks can charge each other -- 1½%, down from 5% just three months ago. Maybe it's me, but that's a real sign of desperation that they have to cut rates that low, practically giving it away -- that is, if the banks are in the mood to release credit.
Meanwhile, the new Dante that will lead us into the next golden age, Barack Obama, is saying it's going to be worse before it gets better. Like we needed to be told that. The new price of his stimulus package: $800 billion. You could buy 800,000 MRI machines -- pretty much one for every 375 Americans -- for that money. Or you could feed the entire planet for several years.
UPDATE (8:14 pm EST, 0114 Friday GMT): For those who were wondering about my comment about Obama being the next Dante, I was being sarcastic, folks. It's a line from one of the many "prefaces" by Freddy Engels to the Communist Manifesto.
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2 comments:
The Japanese did that for years and many economists believe it was a major factor in that country's protracted meltdown.
Lowering interest rates encourages borrowers but does just the opposite for lenders.
Lenders understandably expect to be paid for risk assumed and, in a meltdown, risk becomes a greater problem. Near zero interest rates don't provide lenders with much profit margin out of which to absorb loan defaults.
That's a good point, TMOS -- which is what makes me and and a whole lot of other people wonder when we will actually hit bottom. And last I checked the bank rate in Japan was down to 0.1% which is practically giving it away.
Of course, that stated "central bank rate" is the mean of what banks charge each other . Not consumers or businesses. Even if we can get a line of credit, we're paying what, 8 or 9% if we're lucky?
So the vast majority of banks are still making enough to meet their cash flow -- their huge losses are coming from writing down stuff they have no hope of recovering. Since they report a loss, they don't have to pay corporate taxes which shifts the burden to us Joe and Jane Sixpacks -- and the vicious cycle continues.
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