Another Dose of Global Interest Rate Cuts

This is a quick post to note that today, the Federal Reserve cut rates by 0.5%, which brings the all-in rate down to 1%. The Fed followed a move by the Chinese Central Bank which itself cut its rate to 6.66% from 6.93%.

Several other countries are expected to follow, with Norway already announcing a 0.5% cut down to 4.75%.

Stock markets around the world rallied yesterday on the expectation that central banks were planning these moves.

Not much more to say here, the upcoming post on fractional reserve banking will be much more thorough and in-depth, and will address the issue which I will leave off on:

The world is debt-strained, countries are drowning in debt (think Iceland and Pakistan) and corporations cannot borrow any more because they are over-leveraged as is. Investors are having a hard time trusting corporations and banks, and now the central banks walk in and offer more debt to solve the problem.

The good news here is that debt in the US now costs 1% (to banks and corporations of course). The bad news is, if things get worse from here, how many more rate cuts can the Federal Reserve support?


More readings:

Bloomberg - Fed Cuts Rate to 1% to Avert Prolonged Recession

Reuters - U.S., China Kick Off Global Round of Rate Cuts

BBC - US Interest Rates Slashed to 1%

Wall Street Journal - Fed Cuts Rates by Half Point Amid Economic Deterioration