The Inverse Effect of Interest Rates on Loans

If you borrow $1,000 then spend it right away, which is what most people tend to do when they borrow. But at the same time, you see that prices all over are falling and we have deflation. Since the value of money is increasing, lenders have no reason to risk loaning out their money unless their benefits outweigh that risk. Fewer people lending also means a shortage of the supply of loans so interest rates have to compensate for a lot more.