Will no savings doom Americans?

According to my limited understanding of economics, banks are subject to the law of supply and demand. So, if they want to get more money into their reserves, an increase in interest rates is required so more people will bank their money in exchange for a higher rate of return. Banks can lend more (though at a higher rate) because they have more money in reserves to lend.

However, what I'm seeing is that the banks want to please all the people all the time. This flies in the face of conventional wisdom. There are some fundamental laws of economics being violated here.

Now the questions:
How have interest rates remained low? My savings rate from my credit union is 0.65%!!!!!!
How were the banks able to lend so much money, create so many mortgages, without eventually pulling back the money supply and increasing interest rates?
Why aren't the banks trying to get people to bank their money?


In my view, the banks are now caught in a trap. They need to replenish all of the bad mortgages and are totally dependent on new mortgages, but they will have to borrow because no one has savings. Saving money hasn't been attractive in many years. So, they will inflate the money supply by borrowing from the Federal Reserve and the taxpayer will be hit twice: from the act of borrowing and from the inflation resulting from the increase in the money supply.

The situation must be more dire than being portrayed. Because I cannot for the life of me figure out how the banks are able to keep creating so much money without extreme consequences. I do not see how the economy can ever recover because hyperinflation is sure to take over naturally.

Can someone help me out here???