And the race is on -- the race to zero interest rates. The way major central banks are going, benchmark target rates could hit the big fat 0 before Easter 2009.

Following the Reserve Bank of Australia's 100 basis point interest rate reduction early this week, central banks in the land of Europa executed their own move towards zero last night.

The European Central Bank turned on the aggression, slashing interest rates by 75 basis points to 2.5 per cent after cuts of 50 basis points each in October and November proved impotent in restoring the flow of credit and reviving confidence in the economy. The ECB has never reduced interest rates by this much since its creation a decade ago.

The Bank of England lopped off 100 basis points, taking interest rates down to 2 per cent - the lowest since 1951. This followed November's 150 basis point reduction. The BOE Governor himself has discussed the possibility of zero interest rates a week before.

Denmark's Danmarks Nationalbank reduced its benchmark rate by 75 basis points to 4.25 per cent.

Sweden's Riksbank switched into overdrive and lowered its key rate by 1.75 basis points to 2 per cent -- the biggest reduction in 16 years - as again, cuts of 50 basis points each in October and November are seemingly having no impact. And we thought the Reserve Bank of New Zealand already took a chainsaw to interest rates with its 150 basis point reduction mid-week.

In less than a fortnight, it will be the central banks' central bank's -- the US Federal Reserve - turn to decide on its policy settings. However, with the federal funds rate at 1 per cent, think it would be safe to assume that it would not be able to match the Riksbank's pace of rate chop.

Given the low level of interest rates in most economies, and with inflation still positive, real interest rates are close to or already negative. This means that central banks are virtually giving money away to anyone who wants to borrow.

But herein lies the trouble. Liquidity and interest rates are not the problems. Businesses do not want to borrow because demand for their goods and services are falling. Consumers do not want to borrow because of fear of losing their jobs and hence, the means to pay for free money.

And even if businesses and consumers wanted to, borrowing has become more difficult with banks and other lending institutions tightening their credit scoring and lending standards. Lenders have become twice shy after being burnt by their lax lending standards not too long ago. But even without this scar, the global recession also means that default risks are higher.

Investors are not borrowing. Some may even be paying for margin calls up to now. With financial markets still in decline, the risk of losing money on equities, credit securities or property remains greater than the reward.

Investors could buy blue chips and AAA-rated securities. Two words. Lehman Brothers.

As long as fear remains ingrained in the collective market psyche, even free money becomes scary.