What a zero percent interest rate is meant to do, and why it probably won’t work.

And even if the Fed could hit its rate target, it doesn’t really matter. Banks aren’t lending to one another much at any rate interest. One culprit is actually the Fed itself, with new forms of lending and intervention it’s undertaken in the last year. Check out the Bailout Watch for some of the new Fed programs under way. It’s hard to get raw numbers, but these programs appear to be dwarfing, in scale and necessity, those regular activities raised above that are meant to keep the fed funds rate near the target. A term-auction credit of $448 billion, $312 billion to support the commercial paper market, big backstops for individual companies like AIG and Citigroup—these new programs have made the Fed’s balance sheet more than double in the last year. The FT’s Martin Wolf speculates that the Fed could soon be the biggest bank in the world.

It’s this plethora of mechanisms, some with seemingly contradictory purposes, that’s making a hash of the target rate policy and making banks unwilling to lend to us directly.

Compared with the caffeine jolt of a federal-funds rate cut, these new programs are like a hit of crack cocaine. The caffeine’s not working anymore. With the Fed and Treasury as the drug kingpins, the banks will take whatever product they put on offer, whether it’s the crack of TARP money or adulterated Treasury Bills that promise zero percent return. And just as in any neighborhood of crack dealers, some of the residents, both banks and individuals, are wary. They don’t want the credit that’s on offer, no matter how cheap the price, and they’re afraid of coming together with their own resources to get the neighborhood moving again.

It’s a paradox: We need the Fed to lend cheaply so banks will lend cheaply to us; and yet we’re afraid to borrow, and we’ve become dependent on the other forms of borrowing the Fed has created. No matter how you look at it, it means an increasingly irrelevant role for that morning-coffee jolt the federal interest rate used to provide.

Explainer thanks Carnegie Mellon University professor Marvin Goodfriend, Simon Johnson of MIT, and the Peterson Institute for International Economics.