Are statements like “5% is a reasonable interest rate, 10% is usurious and extractive rent-seeking” meaningful?
What if the numbers were 5 and 6? 5 and 5.5? 5 and 50?
How well-posed and precisely determinable is the concept of rents when applied to cost of capital?
Conversation
Economic rents imply inefficient pricing and/or monopolistic pricing power. With capital, both apply.
A phrase like “capital seeking returns” suggests investors competing on risk and information, but I’m increasingly convinced capital markets seek pure rents, not returns on risk
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The investor class loves to talk about how awash in capital the world is. But nobody who needs money seems to find it easy to get any of it. Capital is willing to take on cosmetic amounts of risk, but really this supposed glut of capital is only interested in risk-free returns.
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There is no capital seeking returns. There is only fiat seeking rents. This amounts to 3 sources:
a) aggregating from greater fools (systematically dumber capitalists)
b) collaterized debt that can lead to extractive capture via defaults
c) derisked technology
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Starts right at the top with money supply
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People assume that the nominal hit rate in say VC investments or default rates in loans are a measure of absolute risk. They’re not. They’re a measure of relative risk, compared to distorted basic return rates to “beat.”
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If S&P is delivering 50%, you need 51% return to log a win as an investor, but if I personally do some work that turns $100 into $149, in a year, it’s weird to call that a failure.
Expected returns that drive capital are an arbitrary artifact of macro, not local value.
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There’s been talk of hyperlocal interest rate regimes so that return expectations are not globally macro-coupled in a way that simply does not reflect reality. Planet Earth as seen by Big Capital is like 99% underwater and one 1% continent named Growthea that’s 10x Everest high
Replying to
The very idea of growth should perhaps be “spatially unbundled” (irl DeFi decentralized banking?)
Growth vs de growth is a red herring argument. The problem with the global economy is not that it is dependent on relentless growth to outrun collapse but that growth is a monolith.
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We get too-big-to-fail companies and banks spanning too-big-to-fail countries because global capital superfluidity forces growth into that form factor. “Growth” is an idea administered by like 10 central bankers setting interest rates valves. Why isn’t it 100 or 10,000?
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Capital should behave less like liquid helium. It flash-floods around like people clicking clickbait on Outbrain. Not saying it should return to the sludge-like pre-modern state it used to be in, but perhaps lots of local boundary frictions making it more like say water.
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