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If the entire economy is structured around the expectation of low interest rates, then raising interest rates would certainly upset a lot of plans. Many busines

If the entire economy is structured around the expectation of low interest rates, then raising interest rates would certainly upset a lot of plans. Many businesses would find they could not afford to employ as many people as expected. Many employees would find not only that they had lost their jobs, but also wasted many years training for a job that no longer exists. Those who invested in affected businesses or capital goods with inflated prices due to easy credit will find those investments collapsing in value. Eventually, the economy could restructure into a more sustainable form, where investments, business sizes and training were aligned with the new state of the economy. But a pain period is not really avoidable, other than by relowering interest rates. The longer interest rates are kept low, the longer and more painful the transition.

izacus 3y ago
> Many businesses would find they could not afford to employ as many people as expected. How does that work? Are they regularly covering their payroll with loans?
- sharperguy 3y ago
  I believe that many business indeed operate at a loss for extended periods of time, by deliberately spending more money on future developments or obtaining customers than they take in revenue.
  - edgyquant 3y ago
    This was definitely true for tech in the last cycle, but how true is this both outside of that industry and historically at all?
    - toyg 3y ago
      Any big business lives on loans. Which is why you see, for example, retailers going bust right before Christmas - which "surely" should be the busiest and most profitable time of the year...? But to go through it you need to buy inventory, which requires loans - if you can't raise money, because the market thinks you're already in bad shape, you have to close up shop. Most significantly-sized businesses rely on credit week-in week-out, and tend to implode very quickly if the market turns off the tap.

izacus 3y ago

> Many businesses would find they could not afford to employ as many people as expected. How does that work? Are they regularly covering their payroll with loans?

sharperguy 3y ago
I believe that many business indeed operate at a loss for extended periods of time, by deliberately spending more money on future developments or obtaining customers than they take in revenue.
- edgyquant 3y ago
  This was definitely true for tech in the last cycle, but how true is this both outside of that industry and historically at all?
  - toyg 3y ago
    Any big business lives on loans. Which is why you see, for example, retailers going bust right before Christmas - which "surely" should be the busiest and most profitable time of the year...? But to go through it you need to buy inventory, which requires loans - if you can't raise money, because the market thinks you're already in bad shape, you have to close up shop. Most significantly-sized businesses rely on credit week-in week-out, and tend to implode very quickly if the market turns off the tap.