I can believe that QE had a positive portfolio effect in the early 2010s. But no-one really acknowledged the downsides (it took them most of the 2010s to work out why QE "worked").

So we have the amazing situation where you will get funding for a project, but only if you promise to lose money. Investment into real assets is extremely low, chemicals and O&G are trading on mid-single digit P/E ratios, and are furiously trying to return capital...whilst we have massive shortages...it is a very unusual situation. And, imo, the cause of this is the shortage of risk-free assets (because creating this shortage, due partly to regulatory restrictions, did not mean that investors suddenly started making investments into the real economy...most couldn't...they just had to buy more "risk-free" assets from corporates who already had too much money or PE funds that were playing the capital cycle...ofc, no central banker understands that some institutions are limited, the textbook doesn't teach that, they don't understand it).

> meaning the real economy could well be full of stuff that destroys value over a 30-year horizon as a norm!

This is probably somewhat hyperbolic since companies who borrow anywhere in the ballpark of the risk-free rate (i.e., large, responsible, and generally financially conservative organizations) typically have an internal hurdle rate that is well in excess of their cost of capital.

What is true is that the hurdle rate exceeds the cost of capital mainly as a risk mitigation mechanism; it is a margin of safety. IRR projections almost invariably depend on certain assumptions about future business conditions. So artificially depressing the cost of capital can result in "more marginal" projects getting the green light, and therefore can increase the potential for financial damage in a serious recession. You can think of it as "risk leverage".