– Illustration by Gary Clement, @garyjoelclement

The last time central bankers cut the rate was in April of 2009. You remember that, right?

How could you not? Just weeks earlier stock markets had hit the lowest point of the financial crisis, plunging the most in 80 years. Investors saw 55% of the value of equities erased, Meanwhile the auto sector was being decimated, with mass layoffs happening there and across the economy. Wall Street banks were smoky black holes. Credit markets were seized. The media was running pictures of hollow-eyed people from the 1930s.

We’ve now had the lowest interest rates ever for six years. The result? Household debt has exploded, savings and investments have decreased, the economy sucks and house prices have largely doubled. If cheap money was intended to create a myopic society based on people borrowing their brains out to buy ever-inflating houses from each other, it was spectacularly successful. If it was meant to retool, rebuild and re-employ, it failed.

Six years later, there’s an economic shock as oil loses half its value. Now a detached piece of junk in Van costs $1 million, listings in Calgary bloat by 70%, half of us say we can’t save a dime because of excessive mortgage debt, and what does the bank do? Right. It cuts rates. It makes loans cheaper to acquire.

Because 70% of Canadian homeowners have fixed-rate mortgages, the move means nothing. None of their payments drop. Borrowers with lines of credit, and some variable-rate home loans benefit. But a 0.25% nip on a $200,000 LOC means a weekly saving of $9.60. Wow.

Meanwhile you can bet that every Audi-leasing, bottom-feeding, frenzied, buy-now-or-never realtor will be making this BoC move sound like the Second Coming. Like a mess of crazed posters here yesterday, they’ll claim it’s fuel for the housing bonfire, that prices will launch as a result, and it’s never been a better time to buy. Add to that the voracious bankers. Remember the awesome debt-creating offers of last Spring, capped by the 1.99% two-year special? Imagine what lies ahead in a month or two.

In short, the rate cut does diddly to ease our epic debt load. But it could do a lot to increase it. So why would the prunes at the central bank do such a thing? Why send the borrowing binge over the edge while making houses even less affordable and punishing savers with GIC rates soon to be pounded to sand?

Simple. Deflation. It’s out there, and it seems to be winning.

The Bank of Canada’s move was not unique. Last week the Swiss shocked markets with a deflation-fighting currency move. The Japanese central bank just pumped up its lending program. The Bank of England has thrown in the towel on a rate increase. Tomorrow the European Central Bank will unveil a trillion-euro stimulus package.

Inflation is most places is on the ropes. In Europe it’s now negative. In Britain it will soon be zero. In Japan it’s expected to drop by half. Growth has slowed in China by the most in 24 years. And now the collapse in oil, which fuels the world, is massively deflationary, especially as it carves $24 billion from expansion plans in Canada and throws people out of jobs. It was this, more than anything, that freaked Stephen Poloz and his Bank of Canada poodles.

The move shocked a lot of people. Bloombeg polled 22 economists prior to the move and the number predicting it was zero. By taking such rash and potentially destructive action, Poloz managed to cream the dollar, guaranteeing indebted families will be paying a lot more for their lettuce, hi-def televisions and Kias.

Not long ago smart Maples were taking my advice to buy cheap houses in Phoenix with $1.10 loonies. Today those houses cost 50% more and the dollar’s worth 25% less. Given the central bank’s admission we’re now a desperate economy with leaders unprepared to support the currency, there’s probably more to come.

Of course, if the bank just ends up costing you more without protecting your job, while encouraging bigger borrowing, this was a dumbass move. It won’t restore the price of oil or lure new investment capital here. It doesn’t slash anybody’s lending costs. Houses don’t get cheaper. But it’ll certainly increase debt. You can smell that. The aroma was all over this blog yesterday like a monetary fungus.

The question now seems simple. Will the real estate cartel and omnivorous lenders act responsibly? Will they remind people that snorfling more debt with deflation looming is like inviting your GF over while your wife’s napping? It may be thrilling. It’s also fatal.

No, I did not see this coming. What a rube.