Be Serious, Donald Trump Doesn't Prefer "Low Interest Rates"

In 1990 Donald Trump traveled to Los Angeles for a meeting with Security Pacific Bank. At the time Security Pacific was the U.S.’s fifth largest bank.

Trump wanted to borrow $50 million (Security Pacific’s house limit) to revitalize the Ambassador Hotel, which was situated in Los Angeles’s Mid-Wilshire district. The Ambassador was once great, but it had fallen on hard times. In 1968, Robert F. Kennedy was tragically assassinated there.

But like all entrepreneurs, Trump had vision combined with enormous confidence about his ability to revive that which had declined. He would “Make the Ambassador Great Again” as it were.

The problem was that the bankers he met with didn't believe he was very liquid. They worried about his ability to sell what he owned in order to remain current on his sizable loan assuming the economy took a dive, which it soon did.

So they refused Trump, though not in total. Trump had what then Security Pacific CEO Robert Smith described as Clinton-like charisma. This is easy to imagine. Love him or hate him, Trump built a globally prominent brand such that his last name adorns buildings around the world. After that, his magnetism took him to the White House on his first try. Politics and policy aside, Trump plainly had and has a presence. He secured a $10 million loan as Security Pacific desired exposure to one of the most recognizable businessmen of the 1980s.

The bank ultimately regretted its decision. As previously mentioned, the U.S. economy dipped in the early ‘90s, and Security Pacific eventually wrote down the errant loan. It’s not a political statement to say that it’s well known among bankers that Trump was viewed as somewhat toxic in the decades following the 1980s. U.S. banks in particular wouldn’t have much to do with him.

Which brings us to the popular view that President Trump loves “low interest rates.” To some degree he feeds this silly perception with his occasional complaints about how the Fed "gave" Obama zero rates. Oh well, the Fed couldn’t nor can it do any such thing. An interest rate represents the cost of accessing real resources. To pretend that the Fed can decree low rates of interest is the near equivalent of San Francisco Mayor London Breed successfully decreeing apartment rents cheap in the city she governs. Lots of luck there.

All of which raises the question why media members go along with what’s so absurd. Joseph Sternberg has the Political Economics column at the Wall Street Journal, so he’s plainly attuned to economic realities. Yet in a recent piece he observed that “Mr. Trump’s preference [for low interest rates] is predictable for a real estate man.” Really? How?

If interest rates were uniformly low, this would theoretically displease the biggest names in real estate for the impossibility that is “easy money” lowering barriers to entry for new competition. If anything, Trump and other major real estate players would prefer higher rates of interest to keep out the interlopers.

But Trump’s alleged preferences aside, can’t the business media be serious? This question is not meant as a singular critique of Sternberg. He’s but the latest to make the odd and economically impossible assertion that “President Trump likes low interest rates.”

Well, of course he does in the grade-school way that we all like easy access to the world’s plenty. Indeed, who among us would scoff at “easy money” exchangeable for amazing houses, cars, buildings, trucks, tractors, labor and anything else produced in the real economy? Lest we forget, it’s real resources that we’re borrowing when we borrow money. So if we can get money readily exchangeable for all that’s produced in the real economy at low cost, all the better.

Notable is that “real economy” is italicized up above. It’s hopefully a reminder that interest rates are “low” not thanks to central bankers or governments, but only insofar as those operating in the real economy are producing amazing houses, cars, buildings, trucks, tractors, and labor that we’d want to access. Theoretically low interest rates can’t be decreed, rather they’re a consequence of abundant production in the actual economy.

And then as Trump’s history with banks remind us, low interest rates that can only be a consequence of real economic activity don’t necessarily  mean “easy money” or “easy” access to resources for everyone. Even though the 1990s, 2000s and 10s were mostly defined by relatively low levels of market interest rates, the banks Trump sought to borrow from largely closed the loan window to the larger-than-life New Yorker. During an era of historically low interest rates, Donald Trump found U.S. banks near uniformly averse when it came to lending to Donald Trump.

So no, it’s not “predictable” that as a “real-estate man” Trump would like “low interest rates.” Low rates did little for him in modern times.

More realistically, credit is tight for every man and woman in all sectors of the global economy. This is the healthy norm. Resources needed to grow any business are always going to be difficult to come by.

Crucial here is that a Fed-decreed low rate of interest won’t alter this reality. Federal Reserve jawboning (meaning rhetoric) aside, Trump plainly understands this. He's spent much of his modern business existence not getting bank loans. Unknown is whether the pundit class understands what’s so basic.