Donald Trump criticized the Fed and cheap money during Monday night's debate with Hillary Clinton. (Photo: AP)

WASHINGTON – For the first president debate, the candidates Hillary Clinton and Donald Trump dispensed with the pleasantries almost immediately. They began swinging at the first question on job creation and never ceased throughout the 95-minute debate, held at Hofstra University in Hempstead, New York. From that first question, Clinton and Trump quickly pivoted into a quasi free-for-all (with debate moderator NBC News veteran Lester Holt struggling hard to control the flow) that ranged from ISIS, cyber warfare, Trump’s personal taxes, and Clinton’s email server scandal to whether stop-and-frisk is constitutional.

Their answers have since been picked over, fact-checked and refuted ad nauseam.

Except one interesting opinion that Trump voiced — an opinion that should be of great interest to the commercial real estate industry.

No Support for Carried Interest

First, though, let’s make clear one fact: Trump is a New York developer and businessman and some of his policy proposals would be welcome by this group. Not all, however —  in one key respect he has gone completely off script: his tax plans call for the elimination of carried interest, an important tax policy for private equity investors. During the debate, he repeated that call.

But that is old news.

During the debate Trump warned viewers — over 100 million of them according to projections, rivaling the Super Bowl — that the U.S. economy is in a bubble. “A big fat ugly bubble” is how he put it.

When interest rates rise, “we will see some very bad things happen,” he warned.

As it often the case with Trump, this statement was accompanied by part controversy and part conspiracy. The reason for the bubble, he said, was that the Federal Reserve “is doing political things.”

Given that no credible and independent economist has ever agreed with the notion that the Fed is a political creature, we can dispense with that thought train.

But the idea that the U.S. economy is in a bubble because of the low interest rate policy of the Fed? That does give one pause.

Cheap Money Leads to Bubbles

Commercial real estate valuations have recovered more than nicely since the recession. Some will say that the fundamentals support that; critics will say the valuations have been artificially inflated because of low interest rates. To be sure, fundamentals are strong in many assets classes but it is equally true that investors have been placing money in any asset class that can deliver a better yield than U.S. Treasuries. Which has driven up prices. Indeed, just last week Fed Chair Janet Yellen said that some Fed governors were concerned about commercial real estate valuations.

This is not a situation unique to CRE either incidentally — it can be seen in many sectors from the unicorn tech prices that investors are willing to pay to residential housing prices.

The Fed believes that the economy is strong enough for interest rates to begin to rise — soon, it says! Very soon! —  without risk of implosion. So we shall see very quickly which view is correct.

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