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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: LLCF who wrote (14592)2/7/2002 3:43:53 PM
From: Ilaine  Read Replies (1) of 74559
 
Lower interest rates encourage borrowing, but that's not the only thing that encourages borrowing. Companies which have an expectation of greater returns on investment are more likely to borrow money. Companies which have an expectation of future inflation are more likely to borrow money. There's always a lag in information - companies can have a false expectation of future returns because the future is always uncertain.

Take capital investment in fiber optic cables - was that increased due to lower interest rates, or was it increased due to expectations about return on investment? My guess would be the latter. Maybe the people who loaned money to Global Crossing were wrong to expect that they would get repaid, but as the market shakes out, not all fiber optic companies are going to go belly up.
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