The cost of money drives everything. It ultimately determines the price of your home mortgage and that complex inverted lease funding your next solar project. It can accelerate growth and employment on to the Rocketship Inflation or crush them into dust. These are unassailable facts. What is not so clear is where those rates are going under President Trump’s second tour of duty at the helm of our nation – along with control of the House and Senate vested with the GOP.
What do I know? The obvious is that when interest rates go up, people and business and government are able to buy less regardless of their desires and aspirations for themselves, their shareholders and their communities. This is buying power at its’ most basic.
However, the pending new wrinkle may be tax cuts. If corporate and personal income tax decreases , perhaps that offsets some of the cost of capital in that you, me, the city and the corporation will have more disposable income. (Not so much for Cities directly but for their constituents). However, (wow, two “however” in the same paragraph), a decline in taxes must result in a decline of government services all the way from the Department of Defense to the dog catcher ‘cuz if it doesn’t, we have budget deficits and deficits require more borrowing and more borrowing forces interest rates up as borrowers compete for a finite supply of investment dollars. If you think having more disposable income results in more purchases of goods and services resulting in more “sales type” taxes, you only have to begin by asking how that’s worked out for the British and their VAT.
Yup, it’s all related in our big global balloon of cause and effect. It is a finite ecosystem Planet Earth and all the sub-systems must act in relationship to one another. I don’t know if it’s a new phrase I’m coining but I’ll call it “ECONOMIC SYMBIOSIS” and it exists on a scale as large as global economics and as small as your child asking for an increase in their allowance chipping away at your beer money.
I’ve no advice or direction this month but for my sincerest wishes you and yours have a great Thanksgiving Holiday…and save me a drumstick please.