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Originally Posted by raulus
It seems like this summary is missing the broader business impact, because real estate isn’t the only industry under fire.
Headline from yesterday’s WSJ:
“Raising money on Wall Street is hardest in a decade”
If the layoffs and/or hiring freezes at many of the tech startups and even established tech shops are any indication, the impact of higher rates spreads deeper than just leveraged companies with variable loans and bonds.
Rising rates means that the cost of capital for just about every business is higher than it was a year ago.
I suspect that we are closer to the top than to the bottom. How much further we have to go before we hit the bottom is where most of the debate seems to lie.
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Separate the 'must' from the 'can'. The cost of capital is an externality. The need for capital is highly variable across industries and businesses. Many of the large multinational tech companies are hoarding cash overseas and opting for financing here to evade US taxes:
https://fortune.com/2022/08/05/us-co...ax-incentives/
Those companies do not 'need' capital, they use it as a tool when it is cheaper than paying their taxes. There are many businesses and industries that exploit situations like interest rate hikes and recessions or fears of recessions to justify wage freezes, wage reductions, firings and so forth. They shift from capital to those tools when capital costs rise.