The Central Banker's Chain Saw Massacre

Bank of England and ECB have cut their interest rates in order to pour more money in the markets and stimulate borrowing. Bank of England cut from 150 basis points so 1.5%. ECB cut from 50 basis points so 0.5%.

These cuts are going to pour money in the markets. Well, theoritically. Indeed, these cuts are not going to be effective if the banks do not pass the cuts to the customers of new loans or on credit cards. Actually, the banks are not sending back the cuts to customers like you and me.

But which is even worse, the firms which want to invest in new projects do not see the cuts because the interest rates at which they borrow are high. So the global crisis is slowing down the real economy.

Even on the interbank market, the banks do not want to lend money to each other because they do not know if the bank borrowing overnight is going bankrupt tomorrow. So the banks are lending only on a daily basis, if they are lending anything.

So when will the cuts be effective ? And if they are not effective, what are going to do the central bankers ? Because if the cuts are not effecient, the central bankers will not have to decrease the interest rates another time because they have already made huge cuts.

I think that the cuts will be effective if the commercial banks reduce their interest cuts. But if not, the government will have to play on fiscal policy to dynamise the economy. However, this was the Bush's policy which has partly lead to the crisis....