Zero interest rates meant that speculative investing (for the purpose of selling later for more money, not for any dividends a company might pay from any profits) with lent money (aka leveraged investment) was pretty much a risk free proposition since loans with zeto interest rates cost no money to maintain. (You and me don’t have easy access to loans for investing from the money markets but the kind of investor we’re talking here does)

Interest rates go up and that lent money now has significant costs associated so investing with lent money (and nowadays that is most of investing done at professional levels) now has to produce enough returns to pay the interest on the loans hence all the pressure for companies to generate profits.

(Note that money from the money markets is typically on much shorter terms - and loans usually are rolled-over into new loans on maturity - than consumer loans, so interest rates on those respond much faster to changing base interest rates than for consumer loans)

(Also the companies themselves also have loans that they now need to pay interest on, which adds a more direct pressure to start having a positive cashflow)

As for central banks raising base interest rates to combat inflation, the idea is to literally make people have less money available (I kid you not: people are supposed to be made poorer) so that they don’t buy as much, and that reduction in Demand will cause prices to fall.

Edit: I was thinking about this and realised I had moved the ??? around but not clarified it all. Specifically, how do we go from “speculative investors having less cost-free money” to “companies which have eternally been in ‘investment phase’ (i.e. losing money whilst promising they’ll one day be the greatest thing since sliced bread) being forced into trying to actually have profits”. Well, for the stock price not to fall too much (which might lead to a rush-to-the-exits, a feeback-cycle were the more money that exits the less the worth of the stock, so the more money exits) and as speculative investors are fewer and/or have less money to invest, they have to appeal to more traditional investors, the kind that judges a company’s worth by their (stock-)Price-to-Earnings ratios (which, by the way, is a ratio that the smaller it is the more appealing a stock is to buy), so to have good P/E ratios without the Price side going down, the Earnings (basically Profit) side has to go up, hence the need to generate some profit (notice that the P/E of a company without profits is INFINITY), which is what pushed them to try and come up with profit NOW to hold their valuations and sometimes even at the cost of future profitability.

This also links with another element I forgot to mention early: the “climb up the yield scale”. In simple terms (as much as possible) - most of the money out there not in the hands of States is owned by two kinds of entities - Pension Funds and the Rich (which, given the extremelly uneven distribution of money actually own more money than everybody else combined) - and they’re not just putting it on a bank and getting Savings Account interest on it, they’re looking for ways to make money from money. Now, back in 2010 when Central Banks “rescued” the Economy through their Zero Interest Rates Policy, that money which was mainly parked in the safest of investments (Treasuries, Investment Grade Corporate Bonds) started getting puny amounts of interest, eventually even losing value (remember how the Treasuries of many countries started having a negative yield - i.e. you paid those countries money to hold your money?!) so they started going up into riskier and riskier asset classes seeking a higher yield (i.e. higher returns on their investments), up and up into Junk Bonds, Stocks, Realestate, Tech Stocks, Startups and even really exotic asset classes like digital “coins” (I very much doubt there would ever have been a Bitcoin mania without all that money seeking yield due to ZIRP), all of which is the “climb up the yield scale”.

Now the “climb up the yield scale” sounds like the opposite of what would make companies which are mainly speculative investments try to make profits because it is exactly that: the rise of baseline interest rates reverses that trend - it makes safe financial assets more appealing (holding Treasuries now actually pays interest, not cost interest, and just up the risk scale investment grade corporate bonds also pay more) which is pulling all that money down (remember, rich people and pension funds: they’re usually quite averse to losing money, i.e. more risk averse that, say, Investment Banks, especially old-wealth) and out from the higher-risk and more speculative investment classes, noteably Startups (and further down Tech Stocks and even Realestate). This again puts pressure on companies which were so far profitless to produce profits: it makes them look safer hence retain some of the investment which had before climbed the yield scale when the safest of investments had ridiculously low (even negative) returns.

There are actually yet more ways through which higher interest rates feed into speculative companies trying to put on a pretty face by actually having profits, but this post is more than long enough already ;)

Most of these businesses operated at near unsustainable levels with almost negligible interest rates on loans, and now they’re panicking because their business model is shit and they’re trying to recover however they can by enshittifying everything.

I personally think that everything has always gone to shit. But in the downfall, new things will take over until that goes to shit. Or maybe because there are new things the old things will go down.

Take the example of video stores. They used the be the best thing ever. Rent all the movies you would like to see for a small fee per movie. Then downloading and streaming came along. Streaming was cheaper and more convenient. Result: video renting business went to shit.

Then the streaming services started to raise their prices. It started going to shit. Soon new ideas/companies/services will swoop in and the cycle will repeat again.

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Simple, the world already ended and we are feeling the slow burn.

Too many humans on the planet to be sustainable. People will start dying en masse in my lifetime, that’s just mother nature correcting things as she always has.

We were on borrowed time since humans discovered agriculture and the fun is over now.

There was a global supply chain shortage due to COVID. This meant that the demand for everything backed-up. This was compounded by people having more time at home and potentially more money to repurpose from services to goods, so the shift also drove up demand. When there is more demand for goods than the amount available, the cost of goods sold goes way up until you reach a threshold where people are forced to buy less or go broke. This is the elasticity of demand. Their is a point where certain goods are no longer appealing in price or affordable in general. It’s really bad when these are mandatory commodities like food.

This runaway inflation is always dealt with in the same way. The central bank raises interest rates for their notes/loans that they make with the banks across the country. This makes consumer and business loan interest rates rise, which makes them less appealing and also staves free cash flow, so people have less money to spend from loans, but potentially their salaries might be affected as well. This has the benefit of forcefully lowering demand. Whenever demand goes down, the cost of goods will start to go down. During the lull of demand, the supply chain can catch up as well. This is not the first time interest rates were raised to fix runaway inflation. Over time, interest rates will go back down again. It is cyclical.

One difference though is that the government is also in a cycle of under-regulating and over-regulating business. At the moment, we were promised more monopoly-busting and cracking-down on driving up prices in a collusive manner to fight the fed’s deflationary tactics and attempt to make windfall profits. Meaning, whole industries are not supposed to band together behind closed doors and agree to not lower their prices. That is called collusion and is supposed to be illegal. As long as that keeps happening, interest rates will keep getting hiked. The current administration seems to have more of a tolerance for this than they should. If things are going to shit, it’s due to this type of corporate cronyism with the government.

Additionally, you have outside actors like China who are buying up land and businesses and contributing to the turmoil in clever ways like making housing and food less affordable.

Source: Am MBA.

But at the same time, this meant companies didn’t have to be profitable, because they could pay out investors from money that other investors gave them???

Few, if any, of the big tech companies were playing out any kind of dividend to investors. It was more that they were content for companies to maybe someday make money as opposed to actually making money,

What do you mean by “everything?”

Because 2013 happened. And 2013 was bullshit. I’m sure Adobe Creative Cloud, iOS 7 and the Xbox One would gladly explain that to you. Oh, and I forgot Vine. I mean, it was really good, but it basically led to Musical.ly, which led to TikTok. YouTube also got rid of the customisable channel page, instead giving us a simple banner instead (I said instead 3 times now). And did I mention fingerprint scanners on phones? I’m sure you all remember Facebook Home. You don’t? Well, you’re better off not remembering it. Also, they killed Brian Griffin only to ressurect him from the dead all of a sudden. And finally, Office 2013. There’s nothing wrong with it, it just looked like garbage.

All of this led to the dystopian lifestyle we’re currently living in.

Actually this is because quality of engineering goes down. Noone seems to be able to design a good user interface. My theory is it’s because the new generation of designers are rised on Facebook and Twitter. They never saw a good, clean UI in their lives.

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Based on what you’ve posted here alone:

Companies that don’t have to be profitable is not quite the case to make. They have to either provide a service valuable enough to gather continual revenue from investors or subsidies to exist… or they have to have a plausible promise of becoming profitable. Easy money really lowers the bar on how plausible that promise needs to be.

Ripping up on that E brake by hiking interest rates has a twofold effect: first it raises back the bar on how useful a service or profitable a company is or aims to be for investors. Secondly it has an overall effect on the economy, including profitable companies with strong investments since all loans are subject to the interest rates. So while that can produce the intended deflationary effect, the whole economy has to recalibrate.

And that’s where things tend to feel like they’re going to shit.

Cory Doctorow (pluralistic.net) has a number of stories now on the concept of “enshittification”. Basically businesses start off being good to customers but eventually get to a point where, if they’re dominant the drive for endless profit results in them turning to squeezing suppliers, customers, everyone.

Tech enables new forms of exploitation.

Planet Money has a lot of good podcasts about this.

If you’re curious about the problems that surrounded low interest rates, this is a good one.

https://www.npr.org/2023/04/14/1170103587/interest-rates-mortgage-summers-blanchard

Because you’re online way too much