Why Did the Tech Bubble Correspond with Low Interest Rates?Ultimately, our economy’s deeper problems aren’t so much a result of “money” as they are bad allocations of resources.
For context, read Bartlett’s article explaining the fall of SVB here. I wanted to make a quick note about why tech bubbles tend to correspond with low interest rate environments. Interest rates essentially dictate how long someone can wait before they need to produce something of real value. In a 20% interest rate environment, it will be evident really quickly if you are failing to produce something of value. Since essentially 1/5 of your capital disappears each year, if you aren’t doing something that will generate real profits quickly, you are sunk. You can’t paper over problems with more borrowing because the cost of that borrowing is so high. Additionally, in such an environment, the payoffs for investment need to be large Read More ›