So on a macro economic scale, if the cost of borrowing money is low, artificially low as in the case of the Fed keeping interest at or near 0, this causes unnatural borrowing?
Yes, but I dunno about the word unnatural. A low interest rate can't be any more unnatural than a high interest rate or any interest rate the Fed might set. You could say the fact that the Fed is setting an interest rate at all is unnatural, of course.
Where does all the money borrowed come from? It seems like a scarcity of borrowable money would result, especially considering how much money the government borrows.
Thin air. Or rather, money is debt. Money is someone else's promise to pay......in this case, in the future, with low interest. Practically, the Fed is doing all the lending these days.
It should be noted that the reason we have not experienced massive inflation yet, despite what the Fed has been doing, is that there has been a massive reduction in private sector lending, so that the total lending hasn't changed too much. A major reason the Fed has pursued its policy of expanding the money supply is to prevent the deflation that would occur with sudden, sharp, deleveraging in the private sector.
Also, what does unnaturally low interest rates do to investors and big businesses?
It makes them more willing to borrow money. Thus, they are more willing to invest it, creating jobs.
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