A weird day for Trump, borrowed money and you

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, moving into uncharted territory to fight the inflationary fire. Previous rate hikes have not abated. He made history by approving a third straight increase of three-quarters of a percentage point.
  • The New York attorney general sued Trump, his three eldest children and his company for allegedly inflating the value of his assets to obtain favorable interest rates from banks, as well as misleading insurers and tax authorities .

I’m not going to pretend that these things have anything directly to do with each other.

One is a story of politics and consumption that affects everyone.

The other is a political and business story about a man and his efforts to get rich.

But if you’re planning on writing a newsletter about how higher interest rates are going to affect people and all of a sudden the attorney general in New York alleges that the so-called billionaire former president s is enriched through access to favorable loan terms, it’s not crazy to wonder if there’s a bigger cosmic point to be made about easy access to borrowed money at lower cost.

Low Fed interest rates in recent years have helped inflate the housing market and support the stock market during the Covid-19 pandemic for people who could afford to buy homes or invest.

From CNN’s report on the Fed’s rate hike:

The oversized hike, which was unfathomable to markets just a few months ago, takes the central bank’s benchmark benchmark rate to a new target range of 3% to 3.25%. This is the highest federal funds rate since the global financial crisis of 2008.

What this means for people:

  • It will cost even more 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 a credit card bill.
  • It will be more difficult to find a job.

RELATED: What Rising Interest Rates Mean for You

Fed policymakers want to tackle inflation — rising costs — hard before it spirals out of control, but without hurting the economy too much.

CNN’s Allison Morrow described Goldilocks’ problem with getting it right in her Nightcap newsletter earlier this week.

“Raise rates too much, we get a recession,” Morrow wrote. “Don’t increase them enough, we get an inflation spiral (and also, eventually, a recession).”

Fed Chairman Jerome Powell has already acknowledged that Fed policy will cause some “pain” in the name of achieving some sort of balance.

Allegations about a Trump borrowing scheme

The pain New York Attorney General Letitia James sought in civil court for Trump would be punitive. She wants him to pay $250 million to the state and restrict his ability to do business in the state. It also refers allegations of criminal acts to the federal government.

“Pretend you have money that you do not have does not amount to the art of dealing. It’s the art of theft,” James said at a press conference announcing the lawsuit.

Trump, who has called himself the “debt king”, knows the value of cheap borrowed money.

The Trump Organization was able to fund a deal for the former post office building in Washington, D.C., and turn it into a luxury hotel with a soft loan of Deutsche Bank. We have long known that the agreement exempted him from paying the principal for six years. Trump sold the hotel lease in May, netting possibly as much as $100 million in profits, according to the House Oversight Committee.

James’ lawsuit alleges the former president, his children Don Jr., Eric and Ivanka, and his company embarked on a plan that lasted more than a decade overvaluing their assets and obtaining loan and insurance terms that are not available to everyone else. Trump denies any wrongdoing.

That the game rich by a different set of rules is not news, as is clear to anyone who has followed the recent stories of how the ultra-rich fund lifestyles with borrowed money to avoid taxes.

millions of millionaires

Ordinary people may not get the terms enjoyed by the likes of Trump, but stock and housing markets swollen by borrowed money have certainly boosted the number of millionaires, as CNN’s Michelle Toh writes.

As many as 5.2 million people became millionaires last year, nearly half of them in the United States alone, according to Credit Suisse’s latest annual wealth report.

The millionaires were helped by “significant increases in economic output in 2021, combined with ‘vigorous’ activity in their respective property or stock markets, the bank said,” according to Toh.

The half-full view of inflation and interest rates

Now, as the cost of borrowing rises alongside the Fed’s rate hike, Americans will be nervously watching their 401(k)s and home values, assuming they’re lucky enough to have one. or the other.

There’s an optimistic way to view Fed news, according to University of Michigan professor Justin Wolfers. Rates are still historically low compared to the anti-inflationary rate hikes of the 1980s.

“If I called my parents and complained about 3.25% interest rate, they would call me back when they paid 15% or more,” Wolfers told CNN’s Ana Cabrera on Wednesday. “So rates aren’t as low as they once were, but it’s not a new world at all.”

He also said not to expect goods affected by inflation to become cheaper.

“If some of them stop rising, that will be enough to bring inflation down,” he said, saying post-pandemic supply chain issues still have not been resolved. It might be less of a hassle to buy a car next year, he argued. But his optimism does not extend to food prices.

“It will still be sore at the grocery store for a while,” Wolfers said.

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