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State of The Industry 2019: Discussion with Peter Linneman

A conversation between Terry Montesi, CEO, Trademark Property Company and Dr. Peter Linneman, Principal of Linneman Associates and Chief Economist of NAI Global.

June 2019

Terry: I always like to start macro. I want to talk about how this cycle differs from those of the past. For instance, the Fed is talking about lowering interest rates in what is currently a great economy. In the past, that wouldn’t have happened. Could the Fed’s control over our economy cause a different paradigm? Of longer cycles and less dramatic change throughout economic cycles?

Peter: First, let me say something on interest rates. There’s no evidence that shows interest rates have any effect on economic outcomes. None.

Next, there’s really two answers to this question There’s an affirmative and a negative answer. The negative answer is, go try to find evidence that moving interest rates has ever really helped an economy very much. If low interest rates were the key to stimulating economic growth, Japan would have the strongest economy in history. In fact, there’s some evidence that suggests that keeping rates artificially low actually hurts the economy, and if you think about why, it’s very simple.

First, everybody says, ‘If you cut rates, money is cheaper for borrowers and they’ll borrow more.’ So you took money out of the pocket of savers and put it in the pocket of borrowers. You’re spending a dollar less. But, someone has a dollar less in income. When you think of it that way, every dollar saved for the borrower is a dollar lost by the lender.  Those negate one another.  When you think about it that way, you go, ‘Gee, this is just a transfer of money, it’s not redirecting so much as it’s transferring.’

Secondly, if you pause for a moment, and you go back to the old days, you have the classic scenario of…

 

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