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Strategies & Market Trends : ahhaha's ahs

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To: ahhaha who wrote (3115)	10/17/2001 12:03:27 AM
From: Don Lloyd	Read Replies (1) of 24758

ahhaha - ...Interest rates rise, assuming non-interference by the FED, because the demand for money exceeds the ability of the economy to provide enough funds at the margin to prevent rates from rising. When rates rise the incremental cost to borrow rises and so at the margin projects that were marginal aren't started. If they had been allowed to start, say by a generous FED interfering to keep rates from rising, those projects would realize half way through that they couldn't stay on budget and be completed. Thus a rising rate forces everyone to be more responsible about borrowing. This has nothing to do about realized costs, but everything to do with preventing rising unrealized costs. ... It seems likely that the relatively small increases in interest rates that the non-marginal projects experience will be more than compensated for by the absence of the ultimately futile marginal projects in the competitive markets for labor and other production factors, thus reducing their cost contributions as they are not bid up and wasted. Regards, Don

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