Low rates causes higher private lending, borrowing creates money (fractional reserve banking). QE also creates money by Federal Reserve buying Treasury's bonds with printed dollars.
Both of these are temporary, but we have had QE and low rates for over a decade now. QE was supposed to be unwound in 2018, but covid pushed it to new peaks.
Creditworthy demand for loans doesn't magically increase when rates change or the Fed buys bonds.
In QE, like with accounting, you debit one side and credit the other. Netting to zero.
The effects it all has probably are real in terms of steering where people park their money. And that matters in the long run.
But that would mainly amplify whatever underlying incentive structures exist for investment.
If you steer people to stocks, and the economy has only ponzi schemes to offer, it might be because they haven't figured out a policy framework that promotes actual production.
But you can't magically add production by rewriting the knobs so that they all go to 11. Printing is differently zero sum, but the analogy works there as well.
> Creditworthy demand for loans doesn't magically increase when rates change or the Fed buys bonds
This is fundamentally untrue. Projects that don’t make economic sense at a high discount rate do at a lower one. This is measurable with mortgages [1], alongside side a host of other cases.
Mortgages are one of the most annoying things to analyze in the economy, up there with healthcare, because of how much it is dominated by the government.
In the US a bank first makes a home loan, and then later gets money from the overnight market to cover the loan... likely from the Fed. They immediately sell the loan to Fannie and Freddie, GSEs that have actually been in conservatorship by the government directly since 2008. And every part of the market is protected and micromanaged and tax advantaged to oblivion. And every bank too big to fail, and loaded up with TARP funds and their bonds bought via QE.
Apply the principles of supply and demand to that, I dare you.
Interesting point. I'm sort of steelmanning the anti-monetary perspective to the best of my limited ability. Partly in hopes of hearing good rebuttals.
Wrong! In reality low rates does not mean more people are qualified for loans. So what happens is more people don't get loans. Or at least many more. Now if you change laws to make it attractive for people with higher risk to get loans. Or give them loans from the government. Etc... That's different.
Whenever people say money printing I don't know what that is supposed to mean. If you mean the government does deficit spending, i.e. spends more than it earns, then yes it indeed does do that, in fact, it even does it to increase inflation but it doesn't change the fact that it is still directly liable for the money it spent via debt, unlike the printing of physical currency.
Money and debt is like matter and anti matter. They both emerge from nothing when separated and disappear into nothing when they come into contact.
Low rates causes higher private lending, borrowing creates money (fractional reserve banking). QE also creates money by Federal Reserve buying Treasury's bonds with printed dollars.
Both of these are temporary, but we have had QE and low rates for over a decade now. QE was supposed to be unwound in 2018, but covid pushed it to new peaks.