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It was a bad day for borrowed money, and it was a bad day for former President Donald Trump.
- The Federal Reserve raised interest rates again, and it wasn’t moving into historic territory where previous rate hikes didn’t come down. He made history by approving a third consecutive increase of three-quarters of a percent.
- New York’s attorney general sued Trump, his three oldest children and his business for inflating the value of his assets to get favorable interest rates from banks, as well as defrauding insurers and tax authorities.
I will not argue that these things are directly related to each other.
One is a policy and consumer story that affects everyone.
The other is a political and business story about a man and his quest to make himself rich.
But if you’re planning to write a newsletter about how high interest rates will affect people, and suddenly the New York attorney general says the alleged billionaire former president got rich through favorable loan terms, it’s not crazy to ask. A larger cosmic point needs to be made about easy access to cheap money loans.
The Fed’s low interest rates in recent years helped inflate the housing market and boost the stock market for people who were able to buy or invest in homes during the Covid-19 pandemic.
From CNN’s report on the Fed rate hike:
The big hikes, which markets missed just a month ago, take the central bank’s benchmark lending rate to a new target range of 3-3.25%. That’s the highest fed funds rate since the 2008 global financial crisis.
What it means for people:
- It will be even more expensive to get a mortgage: rates were already above 6% for the first time since 2008 and are sure to rise again.
- It will take longer to pay the credit card bill.
- It will be difficult to find a job.
RELATED: What Rising Interest Rates Mean for You
Fed policymakers want to target inflation — rising costs — hard before it gets out of control, but without doing too much damage to the economy.
CNN’s Allison Morrow described the Goldilocks problem in her Nightcap newsletter earlier this week.
“Raise rates too much, we’ll have a recession,” Morrow wrote. “Don’t raise them high enough, we get spiraling inflation (and eventually recession).”
Fed Chairman Jerome Powell has already admitted that Fed policy will cause some “pain” in the name of achieving some sort of balance.
The pain New York Attorney General Letitia James is seeking in civil court for Trump would be punitive. He wants to pay the state $250 million and limit his ability to do business in the state. It also refers allegations of criminal wrongdoing to the federal government.
“Claiming you have that money you don’t have not how much the art of the deal It’s the art of stealing,” James said at a news conference announcing the suit.
Trump, the self-proclaimed “king of debt,” knows the value of cheap money.
The Trump Organization was able to finance a deal for the Old Post Office building in Washington, DC and renovate it into a luxury hotel thanks to a loan on favorable terms. Courtesy of Deutsche Bank. We’ve known for some time that the deal exempted him from paying principal payments for six years. Trump sold the hotel lease in May, making perhaps $100 million, according to the House Oversight Committee.
James’ lawsuit says The former president, his children Don Jr., Eric and Ivanka, and his company were involved in a project that lasted more than a decade. to overvalue their assets and obtain loan and insurance terms that are not available to everyone else. Trump denies wrongdoing.
It is not news that the rich play by other rules, as is clear anyone who has followed the recent stories of how the ultra-rich finance their tax avoidance with borrowed money.
Ordinary people may not get the conditions enjoyed by the likes of Trump, but stock and housing markets inflated by borrowed money have certainly added to the number of millionaires, writes CNN’s Michelle Toh.
5.2 million people became millionaires last year, nearly half in the US alone, according to Credit Suisse’s latest annual wealth report.
Billionaires were “supported by significant increases in economic output in 2021, along with “brisk” activity in their respective housing or stock markets, the bank said, according to Toh.
Now, as the cost of borrowing money rises with the Fed’s rate hikes, Americans will be nervously watching their 401(k)s and their home values, assuming they’re lucky enough to have both.
There is an optimistic way to look at Fed news, according to University of Michigan professor Justin Wolfers. Rates are still historically low compared to anti-inflation rate hikes in the 1980s.
“If I called my parents and complained about 3.25% interest rates, they would remind me when they were paying 15% or more,” Wolfers told CNN’s Ana Cabrera on Wednesday. “So the rates are not as low as they once were, but this is not a new world.”
He also said to expect that goods will not become cheaper due to inflation.
“If some of them stop rising, it will be enough to push inflation back,” he said, arguing that post-pandemic supply chain problems are still unresolved. He argued that buying a car next year might be less painful. But his optimism does not extend to food prices.
“It’s going to be a pain in the grocery store for a while, though,” Wolfers said.