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Comment by Joker_vD | Hacker News Reader

So, when the interest rates go up, you shrink the production because it shrinks your gross earnings which makes it easier to pay off the interest— wait, it doesn't. And usually the interest on the loan already taken doesn't change, does it?

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The interest rate isn’t about loans you’ve taken. The interest rate on Treasuries is essentially the price of money.

The value of an enterprise is the sum total of its discounted future cash flows. If interest rates are at 0% then a dollar in 10 years from some pie in the sky AI is worth about the same as a dollar today. If interest rates are 10% for a risk free Treasury bond, then a risk free dollar in 10 years is worth about $0.38. You invest accordingly.

And to further explain, if you don’t increase your near-term profits/shift priorities from future growth to present returns as interest rates increase, under the discounted FCF model your current value decreases. AKA the price of the stock goes down, which shareholders and executives tend not to like.

When a company's existing debt is at 3 percent and they have to roll it over at 6 percent (they are rarely going to pay it off) their costs go up without anything else changing. They will have to cut expenses somewhere else. For forty years, the US (and much of the world) had the opposite phenomenon: 12 percent debt rolled into 11, rolled into 10, and more and more money was seemingly made through no extra effort.

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