In 1963, the mortgage rate was at about 6 percent and your banker knew you, your family, probably even your grandmother.
What reminded me of 1963 and the interest rate at the time is a blog post by John G. Craig Jr., former editor of the Pittsburgh Post-Gazette. In it, Craig referenced “Portrait of a Region,” a four-volume examination of Pittsburgh underwritten by the Ford Foundation and written in the spring of 1963. Streuby L. Drumm, president of the Pittsburgh Regional Planning Association, opened with this paragraph:
“Since 1920, there have been major changes in the structure of the regional economy; these changes are reflected in the region’s shifting patterns of land use, and in the locations within the region of employment opportunities and residential population. The present volume indicates that these changes have left behind them a residue of obsolete physical facilities and derelict land which threatens to impede the orderly development of the region in the future. The problem is one that this region shares with a number of the older metropolitan areas of the northeastern United States, but it is particularly acute here because of the rugged landforms which so limited and channeled development.”
Craig goes on to note that in 1963 our city had wealth. The deep, iconic pockets of Pittsburgh driven by a steel economy, mainly U.S. Steel, had built wealth over the years before and reinvested it right here. It created a strong foundation of a city with a core banking industry led by Mellon and Pittsburgh National banks, plus world-class universities like Carnegie Mellon and the University of Pittsburgh.
That strong core enabled investment to begin in the ’60s that evolved into a second downtown renewal boomlet in the ’80s. Craig noted it was dubbed the “Second Pittsburgh Renaissance.” It is why we all live in one of the great cities in the country. We owe it to the fact that the money did not leave home in the 1900s and was reinvested right here.
It allowed us to migrate to a cutting-edge technological city from a city in 1963 where 40 percent of the population worked in the steel industry.
We were luckier than Cleveland, for example, where J.D. Rockefeller moved from to New York. Imagine what Pittsburgh would have been like had the Mellons left in the early part of the 20th century.
Today, we all live in Pittsburgh, a world-class city; yes, even in these tough financial times.
In September, under Bernanke’s direction, the Fed instituted QE3, or quantitative easing, where it will buy back $40 billion in agency mortgage-backed securities every month. The Fed also extended its so-called “Operation Twist” program to the end of the year, whereby it sells its short-term bonds for longer-term bonds in an effort to drive down mortgage rates.
This move is designed to keep interest rates low through 2015. In addition, it will pump liquidity into the economy. And, mortgage interest rates today are approximately 3.45 percent for a 30-year fixed mortgage. It is cheaper to borrow today than the 6 percent rates even in 1963.
While quantitative easing, or QE3, has its supporters and detractors, these low interest rates are unprecedented.
So, if you are a business owner in Pittsburgh, can you afford to not borrow and try to grow your business? Interest rates now are the equivalent of the likes of Andrew Carnegie stepping up to lend you money at a rate he would only offer to a best friend, or family member. It is, in fact, our time as business people to find a way to seize the moment for a third renaissance.
When I think about all the people I advise on investments, most of them have attained wealth. And, honestly, all of them never got their best investment advice from me; they received it from themselves.
How? By investing in themselves and the businesses they built. Some are professionals like doctors and lawyers who built wealth through slow, steady, persistent work. Others gained wealth through having a business idea and taking a gamble for a company that made it. These are cutting-edge technology companies and, yes, even manufacturing businesses.
But whether you think QE3 is a good idea or not — whether you are Republican, Democrat, Libertarian or Independent — we have an extraordinary opportunity before us. It is also a tremendous responsibility.
We want to be responsible and do not want to squander this chance with bad investments, or even idle investments. And, today, with interest rates so low, money in the bank is an idle investment. QE3 makes my job tougher because the old standby “buy-and-hold” strategies of the previous economy no longer work. I need to find new ideas and companies to invest in. And, the best part of my hard work is to invest in someone or some businesses backed by hard-working people.
What has always worked is hard work and investing in us, and in our city and community. We have the third chance of a renaissance for Pittsburgh before us — the lowest interest rates of any lifetime; some of the world’s greatest universities and banks at our doorsteps; some of the world’s greatest minds to collaborate with. Let’s seize this moment. In 40 years, it will be the difference.