The cut we need
Interest rate cuts do not actually deliver much extra cash into people's hands in the short term. It takes too long for banks to process the cuts through the system. But they do immediately make people feel more confident.
The burden of a mortgage or credit card debt promises to become that little bit easier to bear, so people think it is okay to go on pushing the boat out for another month or two.
As long as they spend and goods are bought and sold in quantity then they and everyone else stay employed and recession is avoided. There is no magic in economic management, it is as crude as that.
The head of the Federal Reserve Board Alan Greenspan cut rates in America this week to a hard-to-believe 1.25 per cent, which is as low as they were when he was a sprightly 20-year-old, not a stiffening septuagenarian.
He did so because 70 per cent of economic activity in the US is consumer spending and he dare not let it flag. It is a philosophy followed in this country too - even though the Bank of England monetary policy committee opted yesterday for no rate changes. Perversely, though, we can take some comfort from that.
It means that Governor Sir Edward George and his team think we are still confident enough, and in spite of chill winds and uncertainties in the rest of the world, our economy remains in relatively good shape. If only the same clear thinking were visible in Europe.
They got it wrong both ways by holding the rate yesterday. Germany badly needs a stimulus and confidence across the continent is flagging in the face of rising unemployment, and slow economic growth. But in refusing to cut rates yet again the European Central Bank doggedly refused to acknowledge its responsibility for keeping things moving.
It has not got the point that stagnation not inflation is today's enemy. Sadly, ECB's blinkered policies can only make life more uncomfortable for us all.
