[jandrewrogers]

> zero appetite for things that make a little bit of money

For obvious reasons, the expected rate of return needs to clear the hurdle of the risk-free interest rate. This puts a pretty high floor on activity that is "worth doing". This is a mechanism by which the phenomenon of ZIRP diversifies economic activity.

[layer8]

The risk-free interest rate is a pretty low floor for returns though? At least in my experience with expectations of what counts as a profitable project.

[jandrewrogers]

The risk-free floor is around 4% these days. Because the return on any other use of capital must be risk-adjusted, the breakeven might be 6-7%. That is roughly a 3x higher rate of return than you needed to breakeven when the risk-free rate was ~0%.

Small absolute changes in risk-free interest rates cause many things to become unprofitable when the relative change in interest rates is large. A risk-free rate of 1.0% and 1.5% are both small but the latter is 50% higher than the former.

[layer8]

Yeah, but my experience with what is considered a profitable project is firmly in the two-digits percentage range. Anything single-digit would count as a fairly low floor.

[zipy124]

Single digit is fairly normal in several of the industries I have detailed knowledge of. Though now interest rates are up most are targeting 10-12%.

[jandrewrogers]

A lot of it depends on the risk. For something that has a profile more like venture you might need a 15-20% return. There are also fixed overheads so you also need an element of scale.

[layer8]

You characterized the risk-free interest rate as “a pretty high floor”. I find this surprising. How are 4–7% gains a pretty high floor? Year-to-year fluctuations often already are in that range.