Former hedge fund managers and writer Andy Kessler recently suggested that Bernanke boost the economy by raising interest rates, cratering the stock market, and causing a few banks to fail.And now everyone is slamming the article he wrote for the WSJ’s Opinion section yesterday.
[Bernanke should raise] short-term interest rates. What? Won’t that kill the recovery? No.
It’s all counterintuitive, but it will work. Ending quantitative easing and raising short-term rates will surely cause the stock market to crater. 1,000 points? 2,000? Who knows? But a selloff will ensue. Does that mean a negative wealth effect? I doubt it. Who really thought they were wealthier at Dow 12,000 versus Dow 10,000?
…But along with a likely lower stock market and failing banks will be several positive effects that will finally kick-start the economy.
People have already jumped on Kessler and criticised his logic, for example, that the FDIC should scrub toxic mortgage assets off banks’ balance sheets –
Hopefully the FDIC is ready to dive in and remove the remaining toxic mortgage assets of any failing banks, along with their managements, and then refloat the institutions.
The Economist thinks it might be a parody meant to undermine the case for interest rate hikes.
And it might be right. Because the way Kessler just throws out predictions without any explanation, like these –
- Oil and wheat and commodities will see a 20%-30% drop in price
- Hiring should restart
Plus the way that he suggests how much interest rates should be raised to — “most likely 2%” — at the end of a sentence about hiring…
Hiring should restart when businesses see normal short-term rates, most likely 2%.
… in an article about raising interest rates, where you’d think the actual rate would be given more explanation, makes us think that this has to be a parody.
But his article could also be totally serious because Kessler is no expert; at least he doesn’t appear to have any true economic experience.
He was a semiconductor analyst at Morgan Stanley before he co-founded Velocity Capital Management, an investment firm based in Palo Alto, California, that provided funding for private and public technology and communications companies.
And his article is the least flippant and the most geniune when he explains why he believes that what’s best for tech companies is best for the U.S. economy.
The companies that are leading the economy, such as Apple and EMC, will benefit from lower costs for memory and storage, as will Google and Facebook stocking their data centres. This price cut on productivity tools will be a good thing for the economy and the real wealth effect.
It’s kind of like when the Fed’s William Dudley attempted to shine an optimistic light on how food prices are rising by saying, “Today you can buy an iPad 2 that is twice as powerful as an iPad 1 that is twice as powerful.” And everyone joked that he’d said, “Let them eat iPads!”