Hi Bob,

Thank you for your comments. I think we will have to agree to disagree on this one. If central banks cannot create easy money and loose credit conditions then what is the point of central banks engaging in their policies? If you are arguing that they do not influence the cost of money, and hence affect the supply and demand of credit then how did interest rates get so low after the Great Recession.

Your analogy is also not quite analogous, because central bank policies affect the price of everything in an economy, not just rents in a single city. So there are not too many leakages out of the system, the way there are with the "big city rents" example.

Last, your arguments seems to rely on a mental model of "supply and demand set market prices." If true, this analysis relies on the conditions for such a mental model being in place for the conclusions drawn from it to be correct. But that is the very case I am arguing: central banks corrupt the functioning of markets.

If I am off in this comment, please feel free to use the forum here to demonstrate your case.

So the case that I am making is that businesses continue to use WACC vs. cost of capital correctly, but that a 2% spread on projects that are approved now are on a much lower absolute level of return. Many projects now wouldn't even garner the attention of the CFO function at a firm in years past, but now are the sugar plum fairies in the minds of many managers. You can hear this when you read through 8Ks and see the types of projects that now obsess managers (I refer to many of these in my piece, above). A 2% spread when costs of capital are normalized are for game changing projects like new products, new technologies, grand global strategy, key restructuring, and so forth.

Yours, in service,

Jason