If voters can’t control government spending, maybe higher interest rates will. In the Wall Street Journal, columnist Andy Kessler, whom I’ve followed for decades, writes:
We are now an economy of logistics, online sales and electronic delivery. Manufacturing economies such as China and much of Europe are much more interest-rate-sensitive than the U.S. Higher interest rates may matter, but for an increasingly smaller portion of our economy.
The Fed’s interest rates are a blunt instrument anyway. Bureaucrats now try to control the economy by tinkering with the money supply and paying interest on excess reserves—Treasury uses reverse repos to soak up liquidity. These are more behind-the-scenes tools than the headline Fed power interest-rates moves we all focus on.
There is an area in which interest rates really do matter: federal budget deficits, unnecessarily boosted by electric vehicle subsidies and other green goo. For perhaps the first time, interest payments this year will be larger than defense spending. This is one reason recent Treasury auctions have seen weak demand, sending long rates higher. Here’s a silver lining: The economy might be fine, but higher rates may finally bring a day of reckoning to rein in the tax-and-spenders.
