By Chris Rossini
Donald Trump recently made a comment on The Federal Reserve:
“Right now, we have the low rates. In terms of real estate, if I want to develop … from that standpoint I like low interest rates. From the country’s standpoint, I’m just not sure it’s a very good thing, because I really do believe we’re creating a bubble.”
With regard to pinning the blame on The Fed for creating (yet another) bubble, Donald should be commended. Politicians like to avoid talking about the Fed as much as they can, let alone blame them as the source of economic bubbles. Good for Donald for pointing the finger right where it belongs.
The rest of Trump's understanding of The Fed needs a little work though. He says that as a developer, he likes "low interest rates". Now, with sound money (which, because of The Fed, we do not have) enjoying low borrowing costs makes perfect sense. But The Fed creates artificially low interest rates, which means investments must be made in error (and en masse) by businessmen.
During the artificial boom, Trump and many other businessmen will feel like geniuses, on paper. It will appear to them that their investments were brilliant decisions, and thanks to The Fed, they were able to make those investments. However, just because Donald can build, it doesn't mean that he should build.
Every artificial boom that The Fed creates, must have a concomitant bust. It cannot be avoided. It is during the bust, that all the investments that should never have been made, are exposed. Being a real estate developer does not exonerate you from the bust either. Head down to Florida, and you'll still see empty shopping centers and homes that should have never been built. Or, head over to Atlantic City, where you'll see a $2.4 billion Revel Casino that stands there empty, with not a person in sight.
Artificially-low interest rates are a poison. They create a false euphoria in the economy, that must end in a nightmare. As a real estate developer, Donald Trump should desire sound money and interest rates that are untouched by anything but the marketplace. That way, a person like Trump could see the truth as to whether or not a particular investment should be made. The Fed creates nothing but lies.
Next, when it comes to everyone else in the country, Donald says that he's "just not sure" if artificially low interest rates are a "good thing."
Of course, they are a very bad thing for all ordinary Americans. When a businessman makes an investment during the boom that has no chance once the bust comes, it affects not only himself. Employees and contractors are hired (that shouldn't be hired for that particular job). These people will have to be let go when the bust arrives.
People during the boom buy homes, and second homes, and boats, and cars that they'll never be able to afford when the bust hits. And when it does hit, it hits hard. Not only do those people lose their jobs, but they have debt collectors coming from all angles, to boot.
The Federal Reserve is the source of price inflation. By printing (i.e., counterfeiting) money, they steal the purchasing power of every dollar that everyone holds. That absolutely hurts ordinary Americans, especially the poor. With artificially low-interest rates, people earn virtually nothing on their savings, causing many to speculate in the stock market and other areas that they have no business speculating in.
Even with all the horrendous economic pain that ordinary Americans must suffer during the bust, a final kick to the gut is unleashed when government comes in to bail-out the so-called "too-big-to-fail" banking system. That's called kicking ordinary Americans when their down.
Donald, with his comment, shows a tiny glimmer of understanding The Fed. But he needs help to actually be someone that's able to do something about it, and more importantly understand why he's doing it.