Rates have been so low for so long, that the trick is how to wean the patient off the cheap-money drug without causing an economic collapse. Nobody knows how to do it safely, which is why rates are bound to stay low for a while yet.

My first mortgage in the early 90s was a one-year term at 14.25 per cent. It kept me awake at night, wondering how I’d cope if rates kept rising. This week you can get a five-year, fixed term under four per cent.

Back then, there wasn’t much borrowing slack either. A home-secured line of credit was a decade away. Businesses had credit lines, but everyone else had loans with fixed terms which meant you had to pay them off.

Now you can get a line of credit with a 3.5 per cent rate, secured against your house, with an option to pay only the interest every month. The banks use that as a selling feature. You can spend $10,000 on a holiday, or a renovation, or new furniture, anything you want and only pay $29.16 a month. Of course, you still owe the $10,000.

Savers, meanwhile, are being punished by pitiful rates of return that are less than inflation. It takes one dollar 37.9 years to double at a rate of 1.9 per cent, which is the best rate I could find for a one-year Guaranteed Investment Certificate (GIC) last week.

These artificially low rates have created the situation where, as of mid-March, according to Statistics Canada, we owed $165 for every $100 of disposable income. This isn’t far off where Americans were just as their housing market collapsed. 

This great borrowing spree has deep roots, which is why it’s such an intractable problem. Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty go on about it, but they’ve caused it, moving in lockstep with central bankers elsewhere.

This all began on March 11, 2000 when the U.S. Nasdaq technology stock index peaked and the ‘dotcom’ bust began. Two years later, the Nasdaq had lost nearly 80 per cent of its value as internet stocks with high hopes, but no businesses disappeared. In the middle of that, on Sept. 11, 2001, came the attacks on the twin towers in New York

The George Bush administration wanted to cushion the economic impact and to keep consumers borrowing, so the U.S. Federal Reserve pushed rates down. The policy worked so well it created a super-heated housing boom. This disaster in the making galloped along until 2008, when at its last gasp, mortgages were being secured by people without jobs.

The housing collapse threatened to create a new Depression. The Fed pushed rates down again, as low as they could go. Not much more than a year later in 2009 came the European debt crisis. Countries, rather than people, had been living beyond their means for decades. With banking systems teetering, the answer was to lower rates. Even so, Portugal, Ireland, Spain, Italy, Greece and more recently Cyprus are all on life support.

The big surprise is that all the cheap money hasn’t fixed a thing. It can’t because consumers everywhere are tapped out. If not, we should have long since seen a wave of inflation leading to rising rates. That expectation saw gold, an inflation hedge, gradually rise to $1,900 (U.S.) an ounce by September, 2011. With no inflation in sight, gold is down 24 per cent from its peak.

Not much inflation is on the horizon either. In its recent quarterly report, the Bank of Canada downgraded economic growth to a meagre 1.5 per cent this year. Better times return in 2015, the bank says.

In the meantime, if you have a mortgage, you may want to lock in for five years and enjoy the security. A recent Bank of Montreal survey found that about half of first time buyers are doing that. If you owe lots of money, it’s a good time to pay it down. You can make a big dent in what you owe with just a little discipline.