The cost of capital for a risk bearing asset is high, but the job market is opening up, allowing people more opportunities to work and earn money. However, companies may focus on maximizing short term cash flow by cutting expenses, which could impact consumers negatively.
With a possible recession looming, B2B companies are preparing for the worst as they consider cost-cutting measures and potential layoffs. While B2B companies may initially be insulated from the consumer effects of a recession, the long-term impact is yet to be seen.
Inflated values of financial assets such as crypto, stocks, and bonds due to raised capital can ultimately lead to stagflation and a recession. The raised capital must be invested in productive assets, such as businesses that can employ people and create products, to prevent further economic fallout.
The cost of capital for debt in the market has risen to 14%, leading to a discussion on mispricing and a potential looming credit crisis. While labor participation is low post-pandemic, companies are focusing on maximizing short-term free cash flow which leads to cutting operational expenses and taking on credits, likely leading to a consumer credit bubble.