Bad idea that higher interest rates could boost US growth

Berkeley

BLACKSTONE CEO Tony James recently published a column in the Financial Times titled To revive America's economy, raise interest rates. This is a very bad idea.

Let us imagine that we have been transported to a parallel universe, one where the US Federal Reserve has not held interest rates at or near zero. Instead, this Fed has gradually raised interest rates for the past six years, and the federal funds rate is now 400 basis points higher than it currently is. Before looking at what this alternate-universe economy would look like, let us review what has happened in the real world.

In the fourth quarter of 2015, households, businesses, and foreign investors saved US$940 billion in the United States. Of that amount, US$185 billion was invested in newly issued government bonds, and the other US$755 billion flowed into interest- and dividend-paying savings vehicles such as loans, corpor…