Yeah, let’s encourage people to borrow money

The U.S. Federal Reserve has cut its overnight lending rate to 2.25 per cent, a move that encouraged investors to buy stocks today.


Since August, the U.S. economy has been affected by the subprime mortgage crisis. which is really only a crisis for people who can’t afford to pay mortgages and for those who lent them money.

This is oversimplifying things, of course. With more than a million homeowners foreclosing in the U.S., and with some Canadian brokerages selling asset backed commercial paper (the paper being backed by assets like homes which have plummeted in price), this may spill over into the Canadian economy, despite the fact that Ontario’s recent employment figures indicate a net increase in jobs.

In addition to the rate cut, the Federal Reserve also backed $30 billion in loans at Bear Stearns, which was acquired over the weekend by JP Morgan, for a price lower than the value of Bear Stearns’ New York office.


So, how does the U.S. handle a debt crisis? By encouraging people to borrow more. Huh?