jmherbenerNot exactly. The argument is that banks create credit out of thin air by issuing fiduciary media. If all the created credit went to mortgages, it would push mortgage interest rates down while other interest rates would stay the same. But then banks would earn more profit from additional fiduciary media issue by lending it into other loans types of loans. So banks arbitrage the create credit across all types of loans according to people preferences (and state interventions).
If all the created credit went into mortgages, then the capital structure would not be built up. Instead it would be expanded in those parts that support housing and would be shrunk in those parts that support other consumer goods.
The primary distortion of the business cycle called “lengthening the capital structure” comes about through producer loans and present money lent directly into the capital structure. The secondary distortion of the business cycle occurs in shifting production toward certain consumer goods bought on credit and away from other consumer goods. These two distortions are intertwined during the business cycle.
Because the effects in these consumer goods industries are secondary, the government’s efforts to boost their demand to boom time levels, even if it could be done, will not restore the economy to normalcy.