The Bank of Canada cuts its benchmark lending rate by 0.25% to its lowest possible at 0.25% and promises to keep it at 0.25% for the rest of the year.It still baffles me that the governments are still resorting to rate cuts despite examples like Japan that prove rate cuts are ineffective in midst of recession shock. Accomodative(cheap) credit and government spending has dire consequences even if it does pull the economy out of the dumps.
In the last century, we had two global wars and one global recession. After which, the "Era of Plenty" Model was created and widely embraced:
• Zero or limited responsibility (corporation)
• Positive Interest Rates regime
• Income/Spending/Excise taxation
• Nations/Countries/Borders
• Wastefulness
On the other side of the hour glass, there is the "Era of Scarcity":
• Full Personal Responsibility
• Zero Interest Rates
• Asset based taxation
• Borderless world (free movement of people, money, and goods)
• Frugality
The New Era is dawning upon us. As incomes and spending power decline worldwide, government revenues plummet reducing effectiveness of their policies. Initial response to increase taxation rates inevitably lead to innovative tax evasion. Since all policies has little or no effect, all the government can do is to continue to draw on debt to pay for what it cannot afford. The bill is then sent to the citizens. The vicious cycle continues, spiralling out of control.
Maybe it is time for the governments to recognize and reduce their roles accordingly. It is a difficult time, let's not make it harder than it has to be.
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