When High Interest Rates Begin to Sustain Scarcity

Higher interest rates normally reduce borrowing, investment and consumption, curbing demand and inflation. Yet they also have a less visible effect. By reducing the value of low-yield bonds issued in the past, rate increases can weaken banks’ funding and lending capacity. Research by the European Central Bank found that this collateral channel measurably reduced corporate lending by affected banks during the 2022–2023 rate-hiking cycle.

The effect becomes particularly important when defence, energy, infrastructure, industrial capacity and AI all require exceptionally large investment at the same time. Governments and major corporations may still be able to raise vast sums, but smaller and medium-sized suppliers must turn this financial capital into functioning physical capacity. If these companies can borrow only at higher rates, for shorter maturities or in smaller amounts, they cannot expand machinery, inventories and employment as quickly as their customers’ orders require.

AI CAPEX is therefore not the source of the problem but a conspicuous accelerator. A technology company may have the money to finance a data centre, yet the project can still be delayed by a shortage of transformers, grid connections, cooling systems or construction capacity. Advance payments and corporate guarantees do not remove the financing need. They transfer it from the supplier’s balance sheet to that of the customer, which must commit cash before the project produces revenue.

The result may be “completion inflation”: finishing existing projects becomes increasingly expensive while commissioning and revenue are delayed. Longer construction times increase interest expense, shorten the useful economic life of equipment and weaken expected returns. Financiers then become more cautious, supplier funding deteriorates further, and capacity expansion slows again.

This is not yet a proven general law but a testable hypothesis. The key evidence would be a widening financing-cost gap between large and small companies, deteriorating access to working capital, rising advance-payment requirements and delivery times, and a persistent divergence between announced capacity and actual commissioning. If these indicators move together, high interest rates may cease to be merely an antidote to inflation: by weakening supply adjustment, they may begin to sustain part of the scarcity that keeps them high.

The full analysis examines the ECB’s measured bank-collateral channel, the financing bottlenecks facing suppliers, AI CAPEX as an accelerator, and the evidence that could confirm or falsify this self-reinforcing investment loop.

The purpose of Unus Multorum is not to tell readers what to think about a particular event. Its purpose is to reveal the connections that allow every reader to form their own conclusions.