I don't think raising the fed rate will encourage banks to lend more money (point 7). You say there is no incentive to lend if the fed rate is zero. Say I'm a loans manager. A guy walks in and wants a car loan. I get the money he needs at zero cost to me and lend it to him at 10% interest. No incentive, I don't think so! If the fed raises its rate to 2% you say the bank will have more incentive. How so? I get the money from the fed at 2% and loan it out as a car loan at 12% interest. Where is the greater incentive to lend?
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Where Did You Put Your Cash After The Fed’s Rate Hike?
I don't think raising the fed rate will encourage banks to lend more money (point 7). You say there is no incentive to lend if the fed rate is zero. Say I'm a loans manager. A guy walks in and wants a car loan. I get the money he needs at zero cost to me and lend it to him at 10% interest. No incentive, I don't think so! If the fed raises its rate to 2% you say the bank will have more incentive. How so? I get the money from the fed at 2% and loan it out as a car loan at 12% interest. Where is the greater incentive to lend?