In Meltdown, Thomas Woods states that the artificial boom brought about by low interest rates encourages both increased high-rish investment and consumer spending, thus stretching the economy in two directions.
In what way do low interest rates encourage more consumer spending?
Credit cards.
Artificially low interest rates makes saving irrational; the trade-off between spending the money and putting it into a bank account to earn .25% interest favors the former. Only at the “natural rate” or “equilibrium rate” will there be equilibrium; there’s diminishing marginal returns away from this position, in both directions (above or below it), causing imbalances.
Well, as loans get cheaper more people can afford to borrow and spend.