Raising Interest Rates

Andrew Leonard via Economist's View:

The Wall Street Journal has an early April Fool's entry -- an opinion piece by former hedge fund manager Andy Kessler arguing that the Federal Reserve should raise interest rates to boost the economy.
The key paragraphs:

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?
Some banks will sputter, and maybe even fail, even the big boys. But they've already had two years since the end-of-the-world sell-off in March 2009 to get their acts together, and many can now pay dividends. 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. This contingency should be well mapped out by now with the Orwellian-named "Orderly Liquidation Authority" in the Dodd-Frank law.

Mark Thoma is pithy in his scorn: "The key to recovery begins with a Fed induced stock market crash, followed by failing banks -- perhaps even systemically important ones?" Yep, that's certainly "counterintuitive." Even with nascent signs of recovery in labor markets, consumer confidence is shaky and concern about the health of the economy high. But Kessler thinks that the sight of a few big banks going down in tandem with a plummeting stock market will change that dynamic for the better! That seems rash.