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US authorities slash base rates

US authorities have tonight cut base rates from 1% down to the 0% - 0.25% in a move which few had forecast and even fewer had thought we would see. This effectively gives the US government the opportunity to flood the money markets with 0% finance at a time when the US economy is dive-bombing to recession. The move reflects a similar situation in Japan where the economy is also in a severe downward spiral and in need of immediate help.

This opens the possibility of UK base rates falling to around 0% in the short to medium term as governments around the world continue to show all of their cards in the battle to beat the worldwide depression. There is very little left for governments around the world to do once base rates have hit 0% and the prospect of a deflationary period looms large in the background. If we have deflationary pressure we could see the worldwide economy plunged into a serious recession which could take years to work through.

It will be interesting to see how the UK government responds to this surprising moving by America as the UK economy is in as bad a situation as the US economy.

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