What if 0% interest rates do not work?
This is a question which we have covered a number of times on the site and one which still attracts differing views and differing comments. They move towards the US led 0% interest rate will see consumers encouraged to spend and take on more debt and businesses able to refinance their operations at lower levels. However, there has been little comment on the fact that debt taken out at around the 0% level will still need to be repaid in due course and variable interest-rate agreements will see payments increase in the future.
The move towards a 0% interest rates and effective "free" borrowing can only ever be used as a short-term fix and even then it is not certain to work. Indeed we have the Archbishop of Canterbury suggesting that the government should refrain from encouraging consumers to take on further debt as a way of trying to refloat the UK economy. This attracted a serious rebuke from 10 Downing Street and seemed to put the government on a collision course with the Church of England.
If Gordon Brown does manage to rescue the UK economy he will be greeted as a hero, a mantle he will have deserved if he is successful.
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