Bank of Canada Pushes Rates Towards Zero

The Bank of Canada lowered interest rates on the Canadian dollar by 50 basis points for January. The Canadian interest rate now stands at a very low 1 percent. This is the lowest level for interest rates in Canada since 1934.Canada has been experiencing a lot of trouble with exports and general economic conditions in the country deteriorating. I have no doubt that within two months they will have an interest rate of 25 basis points or lower. Interest rates hitting zero is just a reality now for countries around the globe. The rabbit hole goes so deep, that no one really knows where it ends. Central banks are just reacting during each meeting with a look at trends and facing the reality that they don’t know where the end of the line is.Numerous politicians in the US have said this is a crisis on confidence, and while most of us might laugh at that, it is true to an extent. I wouldn’t say that we are in a “mental recession”, however, how it this has been approached has a lot to do with the spreading crisis. As businesses and people get nervous and stop spending, the cycle just starts over. Governments are paranoid because there really isn’t a way to communicate with people without committing political suicide.Most of the governments around the world have been slow to react as the global economy turned down, and they have reacted rashly and without enough thought when they finally did act.The world is to the point where the officials that are responsible for economic policy have to stop playing shell games. They need to just admit that there are problems with the system and that some real purging must be done. It is inevitable. The truth is that all these central banks should have done 3 or 4 percent rate cuts a few months ago, and given the system a real shock that was fast and hard instead of waiting to see how bad the damage was going to be. Generally, I don’t support actions like that, I think it is smarter to be more cautious. However, we are facing the implosion of some very dangerous games that have taken place throughout the global economy. It is all interconnected more than ever, so everyone is affected. It’s not that anything like this has never happened before, it’s just that this is the biggest.The global reality is interest rates have to be at almost zero before any type of recovery is going to be seen. Interest rates are not the only key, but they are an important part of the equation.