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In isolation, sure. In aggregate though, increasing demand raises the value of stock, which reduces borrowing costs and encourages companies to expand, which ca
by philipodonnell 10y ago
In isolation, sure. In aggregate though, increasing demand raises the value of stock, which reduces borrowing costs and encourages companies to expand, which can sometimes create jobs.
Not just stock: companies are constantly comparing alternative sources of capital. Any increase in demand from investors for any particular source of capital (bonds, stocks, loans, etc...) will tend to make that capital available at a lower cost to the company.
I have not thought about whether aggregate increases in the demand for housing have the same positive effect on firms, though you could argue that increasing housing values creates home equity and the mortgage interest deduction encourages homeowners to borrow against that new equity and invest the proceeds in ways that will generate a higher return than the interest rate - marginal tax rate, such as stocks. But that happens a lot in economics, many seemingly conflicting forces can lead to the same effect.
- tw04 10y agoHow do you figure the value of stock increasing reduces borrowing costs? I don't know of ANY financial institution that bases the interest rate of a loan on the value of a company's stock. It is, in every case I've seen, based on their credit rating. You could have a stock that's through the roof, but if you don't pay your bills on time that means absolutely nothing to me as a financial institution. On the flip side your stock could be in the gutter, but if you are financially viable and pay your bills on time, I couldn't care less. Generally speaking there is a correlation between stock price and "health of the company", but not always. Finally - stock price increasing creates jobs???? Source? I have never, in my life, heard of a company of any size hiring people because their stock went up. That's the most ludicrous thing I've ever heard.