Yeah, inflation rate is high, so central banks are trying to counteract that by basically slowing down the economy, so that our normally scheduled inflation countermeasures kick in appropriately. Well, and the usual way to slow down the economy is to make it more costly to loan money, i.e. increase interest rates. Which means investors can’t just pump money into any company anymore, they want that money to actually pay out to cover those interest rates. And that means companies need to actually be profitable to get money to finance their operation.
So does that mean all these businesses were always doomed to fail anyways, just living on borrowed money/time, and now the bill comes due, they’re all fucked?
Simplified: If you can borrow 1 Million USD for 0% apr and earn 1000 USD with that, you have 1000 USD in profits.
Now change the apr to 5% and you are 49,000 USD in the red.
Eh. Most of these companies were profitable. Just not seeing the exponential growth that the stock market dictates when interest rates are high. Unity, not so much, but its revenue was always fine, its just a really poorly run company. Who knows where they piss the kind of money they are pulling in to.
Kind of. In the past investors were willing to be more patient, and company values were artificially high, because they were based on potential profits rather than actual profits. That’s shifting a bit as interest rates go up.
This would make sense if Unity increased their fees, but it doesn’t make sense to invent a new revenue stream based on a metric you can’t even accurately measure. That’s profit-seeking.
And it’s most costly to increase interest rates not because those directly affect the investors, but because those interest rates affect the borrowers since the borrowers will need to make more and more money to be able to pay back the initial injection + interest.
If borrowers don’t think they can pay back, then they probably won’t borrow in the first place. If they do borrow but don’t make enough to pay back those loans + interest, then the investor loses out.
And if borrowers don’t borrow in the first place, then investors sit on their money when they could theoretically inject it into other businesses so they can earn on what they own, and not just let their assets stagnate (or decay). To investors, this might also be perceived as a loss.
Borrowing isn’t always the active part. When a company is listed on the Stock Exchange, then investors play the active role by buying or selling their stock.
Most investors don’t just have tons of money laying around. They have property, which they can list as security when borrowing money from banks. And then they lend that borrowed money to companies seeking(/allowing) investment. That means:
a) With high interest rates, investors do have a need for their lent money to pay out, too. As do the banks, because they borrowed it from the central bank.
b) Ultimately, lots of money will be given back to the central bank. The money is effectively removed from the economy then. If you’ve ever heard that inflation comes from too much money being in circulation, that’s how that ties back in.
I’m no expert either, though. I’m just summarizing what makes sense to me and what I’ve learnt from making this post a few weeks ago: https://feddit.de/post/2514573
Oh I see, so it’s like a merry-go-round, and everyone wants to have their money returned with more than they borrowed so that not only can they have some left over for themselves, but to also pay back those they themselves borrowed money from in order to lend in the first place. Recursive lending/borrowing up until the central banks, like you said.
Risky stuff. If any single entity along that lending/borrowing chain/network flops, it can send shockwaves to everyone else, all the way back to the central bank.
I’ve said this for about a decade now: I firmly believe this world we live in now is the inevitable, unavoidable result of having every company run by people with business degrees and no passion for the businesses they run. When your entire education was focused on how to extract one more penny from customers and how to psychologically make addicts out of everyone, this is what we end up with. I fucking hate it. Everything is enshitified and it sucks.
Agreed, VC have poured free money into excellent, but unsustainable businesses trying to chase ‘growth’ long enough that they can sell out just before everyone realizes that it won’t make money. It’s just a scam of rich people preying on other rich people.
Instead of trying to build a self sustaining company to begin with (which requires hard work to balance revenue against customer needs and desires) they build ‘free’ products that people love, but can’t make money, only to switch the company to crappy products that people hate, but now are trapped into using.
Our entire digital economy is built on these bait and switch companies and it sucks
We just live in a dystopia. The leadership will milk you dry, for pennies, for short term profits. When you’re this greedy, you can’t see more than a day into the future. It’s just another reminder than corporations aren’t your friends
result of having every company run by people with business degrees and no passion for the businesses they run
You’d think that even soulless business ghouls would’ve learned somewhere along the way to put a price tag on things like long-term customer loyalty and the soft power of your brand. So either they’re too dumb to take all the variables into account or they’re looking only at short term gains.
I disagree. This is all the system working as expected. There is no such thing as infinite growth and yet we are conditioned to always need it or else it’s a failure.
Is it just me or are all big companies killing themself right now?
Yeah, inflation rate is high, so central banks are trying to counteract that by basically slowing down the economy, so that our normally scheduled inflation countermeasures kick in appropriately. Well, and the usual way to slow down the economy is to make it more costly to loan money, i.e. increase interest rates. Which means investors can’t just pump money into any company anymore, they want that money to actually pay out to cover those interest rates. And that means companies need to actually be profitable to get money to finance their operation.
So does that mean all these businesses were always doomed to fail anyways, just living on borrowed money/time, and now the bill comes due, they’re all fucked?
Simplified: If you can borrow 1 Million USD for 0% apr and earn 1000 USD with that, you have 1000 USD in profits. Now change the apr to 5% and you are 49,000 USD in the red.
Eh. Most of these companies were profitable. Just not seeing the exponential growth that the stock market dictates when interest rates are high. Unity, not so much, but its revenue was always fine, its just a really poorly run company. Who knows where they piss the kind of money they are pulling in to.
Welcome to capitalism.
Kind of. In the past investors were willing to be more patient, and company values were artificially high, because they were based on potential profits rather than actual profits. That’s shifting a bit as interest rates go up.
This would make sense if Unity increased their fees, but it doesn’t make sense to invent a new revenue stream based on a metric you can’t even accurately measure. That’s profit-seeking.
And it’s most costly to increase interest rates not because those directly affect the investors, but because those interest rates affect the borrowers since the borrowers will need to make more and more money to be able to pay back the initial injection + interest.
If borrowers don’t think they can pay back, then they probably won’t borrow in the first place. If they do borrow but don’t make enough to pay back those loans + interest, then the investor loses out.
And if borrowers don’t borrow in the first place, then investors sit on their money when they could theoretically inject it into other businesses so they can earn on what they own, and not just let their assets stagnate (or decay). To investors, this might also be perceived as a loss.
Do I have that right?
In principle, yes, although two things to note:
Borrowing isn’t always the active part. When a company is listed on the Stock Exchange, then investors play the active role by buying or selling their stock.
Most investors don’t just have tons of money laying around. They have property, which they can list as security when borrowing money from banks. And then they lend that borrowed money to companies seeking(/allowing) investment. That means:
a) With high interest rates, investors do have a need for their lent money to pay out, too. As do the banks, because they borrowed it from the central bank.
b) Ultimately, lots of money will be given back to the central bank. The money is effectively removed from the economy then. If you’ve ever heard that inflation comes from too much money being in circulation, that’s how that ties back in.
I’m no expert either, though. I’m just summarizing what makes sense to me and what I’ve learnt from making this post a few weeks ago: https://feddit.de/post/2514573
Oh I see, so it’s like a merry-go-round, and everyone wants to have their money returned with more than they borrowed so that not only can they have some left over for themselves, but to also pay back those they themselves borrowed money from in order to lend in the first place. Recursive lending/borrowing up until the central banks, like you said.
Risky stuff. If any single entity along that lending/borrowing chain/network flops, it can send shockwaves to everyone else, all the way back to the central bank.
Thanks for the 2 cents.
I’ve said this for about a decade now: I firmly believe this world we live in now is the inevitable, unavoidable result of having every company run by people with business degrees and no passion for the businesses they run. When your entire education was focused on how to extract one more penny from customers and how to psychologically make addicts out of everyone, this is what we end up with. I fucking hate it. Everything is enshitified and it sucks.
Agreed, VC have poured free money into excellent, but unsustainable businesses trying to chase ‘growth’ long enough that they can sell out just before everyone realizes that it won’t make money. It’s just a scam of rich people preying on other rich people.
Instead of trying to build a self sustaining company to begin with (which requires hard work to balance revenue against customer needs and desires) they build ‘free’ products that people love, but can’t make money, only to switch the company to crappy products that people hate, but now are trapped into using.
Our entire digital economy is built on these bait and switch companies and it sucks
We just live in a dystopia. The leadership will milk you dry, for pennies, for short term profits. When you’re this greedy, you can’t see more than a day into the future. It’s just another reminder than corporations aren’t your friends
deleted by creator
You’d think that even soulless business ghouls would’ve learned somewhere along the way to put a price tag on things like long-term customer loyalty and the soft power of your brand. So either they’re too dumb to take all the variables into account or they’re looking only at short term gains.
I disagree. This is all the system working as expected. There is no such thing as infinite growth and yet we are conditioned to always need it or else it’s a failure.
We are on an ever accelerated race to the bottom.
The definition of success is woefully broken.
I feel like we’re saying the same thing.
I feel like this trend was outlined in economic theories over 100 years ago.
The poor guys just want to fulfil the infinite company growth expectations of their stakeholders.
Eat the rich. ALIVE.