Quote:
Originally Posted by Rain Man
I've read speculation that we'll never get down to that near-zero rate again, and I figure that's probably not a bad thing. Those ultra-low rates seem like they'd limit options in different scenarios.
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I went to a conference where a KSU Ag Econ dude was talking and he postulated that the super low rates were bad for the economy because it doesn't properly allocate capital.
I took that to mean that capital is flooded towards low return (less worthwhile allocations) because there was no other return. Whereas if you want investments you're going to have to beat the treasuries over at least the intermediate term. I didn't follow up, but I thought it was an interesting way to look at fiscal policy.
I also think there are some bullshit economist assumptions in there. When Theranos started, the rates weren't super epic low, and that didn't prevent a MOUNTAIN of dumb**** otherwise successful individuals from throwing a pile of money at it and forgoing all corporate governance. Even to the point at which they didn't feel it necessary to call a biologist and ask "hey is this super common procedure even possible with this small amount of blood?" Nothing.
Same with Wework. Their biggest funding rounds were when rates came back up and NOBODY though to ask the question of, "hey, they're buying a ****ton of real estate. Should we value this obvious real estate company as a tech company? What's their cost to scale?" NOBODY
So even at higher interest rates there is apparently a ton of money out there that is wholly unwilling to do even a little bit of due diligence. So I don't think that's necessarily correct, but I don't think it's grossly incorrect either.
Nothing rates definitely limit the risk averse. Absolutely. But it can limit the front side of businesses too. R&D costs and infrastructure improvements across industries are also affected. So I think there is a case to be made either way. And again, both those probably go back to the same inappropriate efficient distribution of capital assumption that I'm not comfortable with.
So ultimately I don't have a particularly strong opinion. But as a guy that has both money borrowed and at times is trying to get a return on operating capital, I'd say the extremes are probably bad.