Fed Cuts Prime to Minus 2

In a bold move designed to stimulate the economy, stem the growing tide of mortgage defaults and forestall runs on investment banks, the Federal Reserve has cut the prime lending rate to minus two. In effect, anyone who borrows money from now on will be getting paid by the U.S. Government.

Ben Bernanke, the Fed chairman who replaced Alan Greenspan, explained that there was no other way to convince banks to get back into the lending business. "The problem with keeping the rate above zero is that you still need to have banks that are willing to lend money." Under this scheme, Bernanke said, "Banks can afford to pay customers one percent on any loan they take out, while the Federal Reserve will pay the banks two percent. Everybody gets a little love." Bernanke pointed out that variable interest rate loans would automatically begin paying interest to home owners as soon as the loans were due to reset. "But there's no reason to wait for it to happen. My advice to Americans is, 'go out now and borrow a bundle.'"

Supporting Bernanke's "win-win" argument, Treasury Secretary Paulson stated that the Fed's move would also take care of any problems in the job market. "From now on, no one has to worry about their job going overseas. In fact, nobody even needs a job any more. All you need to do is figure out how much money you'd like to earn and take out a loan for one hundred times that amount each year. Fifty percent of Americans could probably do the math in their heads."

Paulson admitted that repayment of the principle was still a sticky issue, but said that in all likelihood banks would have to repay customers who borrowed money rather than the other way around. "If it's a positive rate, the customer pays interest and repays the loan. So if it's a negative rate, the bank has to pay. That's just logic." Asked by skeptical reporters if the plan might not lead to greater inflation, Paulson cranked his arm like someone operating an old-fashioned printing press and said, “Clickety-clack."

Among administration officials, only President Bush seemed to cast doubt on some aspects of the plan. "People who take out a loan like this on their house might lose their mortgage deduction, see, 'cause the loan is actually kinda like income." On the other hand, the President thought that by borrowing really huge amounts of money, ordinary citizens could make it into the top income bracket and thus lower their taxes.