Shouldn’t it work in the reverse? If businesses are getting loans at higher interest rates shouldn’t they be doubling down on investments as a safety net?
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There are two big issues at play here – one is that businesses constantly borrow money, and lots of it. Two is the purchasing power/utility of money.
When interest rates go up, it is expected that banks and businesses will borrow less, because the cost of money goes up. Less borrowing typically means less growth, less investment, or some kind of reduction in operations of the business. Regarding the purchasing power/utility of money. Interest is a cost, and the more a business has to pay for that loan, the less capital they have for other things. Businesses may hold back on spending overall if they have a need to continue to borrow the same amount of money at a higher interest rate. They only have so much to spend, and that means less money changing hands – the economy only does well when money is moving, a recession is caused by the lack of movement of money. So the “movers and shakers” in the market will bail out of their most lucrative or speculative investments, and the prices of securities drop the more they sell. It actually becomes a self fulfilling prophecy.
I think it is hard concept for some people to consider, but consider this – money is a resource like any other resource that has to be bought. Fungible resource, yes but still a resource. Money costs money. Banks sell money, How do we buy money from a bank? With more money. But you might only have so much, and like when the price of anything else goes up, if we want to buy it the extra cost has to come from somewhere.
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