Why not learn some stuff? Here's some stuff to learn!
Vox EU - banks are not loanable-funds intermediaries. I'm still just some guy who got an A in Intro Macro, but this is a blockbuster of an article. Quote:
...virtually all of the newly developed models are based on the highly misleading ‘intermediation of loanable funds’ theory of banking (Jakab and Kumhof 2015). We argue instead that the correct framework is ‘money creation’ theory.So apparently macroeconomists still believe that the government "prints money" and banks only lend it, when really the banking system creates all money, and any crisis which happens results in an aggressive monetary contraction starting by the banking system. Read the article and go to Wikipedia to understand any terms you have a problem with,.
In the intermediation of loanable funds model, bank loans represent the intermediation of real savings, or loanable funds, between non-bank savers and non-bank borrowers;
Lending starts with banks collecting deposits of real resources from savers and ends with the lending of those resources to borrowers. The problem with this view is that, in the real world, there are no pre-existing loanable funds, and intermediation of loanable funds-type institutions – which really amount to barter intermediaries in this approach – do not exist.
Specifically, whenever a bank makes a new loan to a non-bank (‘customer X’), it creates a new loan entry in the name of customer X on the asset side of its balance sheet, and it simultaneously creates a new and equal-sized deposit entry, also in the name of customer X, on the liability side of its balance sheet.
The bank therefore creates its own funding, deposits, through lending. It does so through a pure bookkeeping transaction that involves no real resources, and that acquires its economic significance through the fact that bank deposits are any modern economy’s generally accepted medium of exchange.
Now, here's a trio of articles for anyone who likes to blather about the evil Fed "suppressing" interest rates.
Antonio Fatas - interest rates: natural or artificial? Quote:
The debate about who is responsible for the low level of interest rates that has prevailed in most economies over the last years heated up when Ben Bernanke wrote a series of blog posts on what determines interest rates. He argued, once again, that it is the global dynamics of saving and investment the one that created a downward trend in interest rates starting in the mid 90s and that it accelerated as a result of the crisis.Basically, there is a market for loanable funds, which takes saving and lends it out to borrowers; this is good because borrowers use those funds to finance capital investment, which is how an economy grows its GDP. This is first year macro (and the most fun and difficult part of the course, too bad they didn't spend more time on it).
The market for loanable funds clears at the equilibrium interest rate determined by supply and demand. So if you have too much saving and not enough investment, the interest rate will drop to a low equilibrium rate to clear the market.
And so, assuming for example a closed market in the US (more on that later), in the 50s thru the 70s the demographics meant you had a large cohort of borrowers and very little savings to lend. So interest rates were damn high. Nowadays, by contrast, all those boomers are wealthy (at least compared to their grandparents in the same social class decades before) retired people with a large amount of savings, and there's nobody for them to lend to, so interest rates are very low.
Of course the US isn't a closed market, things are more complicated; but Bernanke goes into this:
Bernanke blog - why interest rates are so low, part 3: the global savings glut. His post really isn't difficult to follow, it's still just first-year intro macro: he just internationalizes the US situation described above. Problem as he sees it is that the post-1997 IMF crisis emerging markets (think China, but others too) are simply doing what the IMF told them to do: save a ton of money and build massive forex reserves. Unfortunately, there's nobody for savers to lend this money to. And so you get a global saving glut.
And Bernanke actually identified this as a problem in 2005:
Bernanke FRB Speech, 2005 - the global saving glut and the US current account deficit.
This is all really really really really really important, and you should maybe set aside a couple hours to read all these articles, and the Wikipedia links I have included above, so that you can get a handle on this, because it affects the over-arching narrative according to which you're investing in the market long-term.
Personally, I still don't see an explanation in any of this for why the low interest rate doesn't stimulate business capital investment, driving a massive worldwide productivity boom. Maybe it's because, at a low interest rate, the money gets diverted into completely unproductive assets like household real estate? And also, the low interest rates stimulate buying equities (because even at a low yield they still pay you more income than lending does), which doesn't actually grow GDP?
Anyway, please do read the above.
Or, y'know, wait 2 years til I gots me my Ecomonomics BA and then subscribe to my paid newsletter for $300/yr.