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Economic Confusion
Let me see if I have this straight:
1. Banks are reluctant to lend to each other these days.
2. Lenders make more money when interest rates go up, and less money when rates go down.
Therefore,
3. The Fed thinks that they can improve things by repeatedly cutting interest rates on inter-bank loans, now to almost nothing.
Am I crazy to think that this is backwards? The problem is a lack of supply (of loans), and they seem to be taking steps that increase demand and reduce supply.
1. Banks are reluctant to lend to each other these days.
2. Lenders make more money when interest rates go up, and less money when rates go down.
Therefore,
3. The Fed thinks that they can improve things by repeatedly cutting interest rates on inter-bank loans, now to almost nothing.
Am I crazy to think that this is backwards? The problem is a lack of supply (of loans), and they seem to be taking steps that increase demand and reduce supply.