Basic economics. It doesn't just pass certain laws--it literally prints money out of nowhere. I am not an economics guy, but even I know that it would not be wise for me to take out a loan with how much money I make. It would cripple me financially for the rest of my life. And now with the banking collapse, maybe Trump and Biden printing money out of nowhere was not such a good idea.
The gov took out big loans which caused inflation because of a thing called fractional reserve banking. The more loans that happen in the system the more money is created in that system. The federal reserve is supposed to increase interest rates to curb loans between banks. In 2008 they massively decreased interest rates so the banks would make loans to small businesses, but all they did was buy their own stocks back.
As long, as interest rates are low banks, make loans to other banks and not small businesses.
If interest rates are high, that benefits the lender, but costs the borrower. So banks want to lend money, but small businesses don't want to borrow, because of the high cost of the interest.
If interest rates are low, that benefits the borrower, but costs the lender, as the lender makes a lot less money from each loan. So then small businesses want to borrow, but banks won't want to lend, as they have a low ROI.
So when interest rates are lowered in order to increase loans, that is on the basis that since the banks cannot make a large profit from any one loan, but could make large profits by making lots of loans, the banks would thus loan out more to keep their profits high.
It's the same idea as selling products for cheap, to millions of consumers.
However, that only works when the banks have reason to think that they'll make a decent profit by such a scheme, i.e. when they can expect that the majority of borrowers will pay the capital and the interest back within the term of the loan. That is true of any loan. But the more loans you make, the more chance that one of them will default, and so the greater the chances of a loss of profits. So in such a scheme, you need to be living in a time when 99.99% of borrowers make all of their payments on time, i.e. you need to be living in a time when insolvency and defaulting on loans is almost unheard of.
That used to be the case in the past, because people used to get jobs, marriages and loans, mostly based on their reputation. So you couldn't borrow money until you had built up a decent reputation, and so people were very careful to always keep their word and never welch on their debts, to build up a reputation of being reliable, and especially when it came to paying their debts.
That also meant that if you wanted a loan, you either had to rely on your family's reputation, which meant that your parents and grandparents had to have lived in that country, and built up a reputation that would also mean that you were trusted as part of the family, or you had to spend 20 years in that country to build up a reputation for yourself, before anyone would lend to you.
As a result, small businesses usually were set up either by your family who had lived in the same country for many years, or they would only be set up by someone who immigrated when he was 9, then worked for 20 to 30 years, and only started a small business when he was in his 40s or 50s.
However, people's attitudes changed from the past. In addition, unlike the past, many young people are trying to start small businesses. In addition, many of these people are immigrants, or come from a family with a poor credit history, or live separately from their parents.
The final straw for the banks came in 2008, when over a million new home-owners defaulted on their mortgages. This showed the banks that their employees who had been lending, had been seriously over-optimistic about the ability & commitment of borrowers to pay back their loans, and so they became much more cautious about making new loans.
So the Fed is trying to use a tactic that worked in the past, that has very little likelihood of working nowadays. I doubt that the officers of the Fed are that ignorant to not know that things are different nowadays. But they just don't have any other solutions that would not involve political suicide for Biden et al. So they'd rather lower interest rates, and then blame the banks, to make Biden et al look like the good guy.
Of course, that also happens to work in the favour of anyone who knows that the interest rates will be lowered in advance, such as Biden's friends, because they have information about the future of finance, and so can make a killing in the stock market.
So it kind of works to some people's interest.
