It's almost as sure a bet as the sun coming up tomorrow morning--interest rates will continue to trend up. Given our outsized deficits and egregious national debt, investing in T-bills just gets riskier for buyers who will demand a higher return. And higher interest rates mean servicing our humongous deficits will become even more costly for taxpayers, credit will become more expensive for investors, and the chances for robust recovery will be compromised.
But should we be surprised? Can the Fed sustain rates much longer at levels so far below the historic mean without eventually ramping up inflation. At some point the cheap credit era had to end and unfortunately the crash was just step one. Rates have only been kept artificially low by pumping dollars into the money supply to forestall greater economic catastrophe. As the economy stabilizes we'll need to get off that medicine quickly or inflation infection sets in. And long-term rates have already begun to take off. Welcome to step two--a reversion to the mean.
I'm betting rising interest rates will be the big economic story of the next 18 months. They will slow down any housing rebound and make refinancing even more difficult for borrowers confronting rollovers. And banks may have an even more difficult time dealing with their toxic asset portfolios--delay is not tidying up the picture.
But what should we worry--all those economists are telling us about the second half recovery.
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Jonathan D. Miller
A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for GlobeStreet.com, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.
