I read from various sources that yield curve is normally upward sloping. If that's the case, if we borrow short term and lend long term, won't we always make money on average?
Let's say 1-year interest rate is 1% and 2-year interest rate is 2%. I could borrow for one year and lend for 2 years. After one year I refinance, and as long as the interest rate is below 3%, I will make money. So the only way I could lose money is if one-year interest rate rises above 3%. However interest rates are as likely to go down as it is to go up, and the chance that it rises above 3% is even slimmer.
So here's my argument. If the shape of the yield curve is consistently upward sloping, the short term interest rate has to go up by a significant amount in order for the "short borrowing long lending" strategy to lose money. However interest rates cannot go up forever. On average, it goes down as often as it goes up. Therefore the "short borrowing long lending" strategy will most likely profitable.
I know there are other risks involved, such as credit risk or inflation risk. But are these enough to explain it?