This seems overly pessimistic. I'm sure a high rate environment isn't ideal for a lot of businesses, but we've had much higher rates in the past and most businesses survived it just fine.
Those businesses were the ones that were either created in that environment, or who survived it long enough. The last time rates were this high, they were this high for decades.
I fear the cliff scenario because a lot of business models now were built on a foundation of crazy-cheap debt. The tide is about to go out. Eventually the business environment will re-adjust to the new cost of money, but the transition will be tough.
Seems like it came down after 2007 and 2000 highs at similar levels. But who knows, maybe US government will leave it high. Maybe they will bring it back down to juice asset prices. Maybe the parameters of the world have changed to not allow that.
Although the Fed can backstop commercial paper in emergencies (and they did so at the beginning of the pandemic), it's extremely unlikely that they start taking on enough to move rates in the medium term (like they did with mortgage backed securities). So this is not a rate that the government controls except very indirectly.
We had a taper tantrum in Jun 2019 - the commercial paper markets almost seized up, and the Fed started dropping rates then, a good 9 months before COVID. That's what business leaders remember. We couldn't service 2.5% rates in 2019 (actually more like 2%, it takes time before companies need to rollover their debt), it seems extremely doubtful that we can service 3.25% now.
What do you mean by crazy cheap debt? If you have a loanable funds model where all money that is not being spent is being saved then the interest rate is 0%.
The fact that people don't save the money they don't spend has more to do with how cash works and how it makes it pointless to save.
You're totally right that business can thrive in a high rate environment, but we have a LOT of them right now whose existence has been sustained due to the low rates, extending all the way down to proper zombie companies. A lot of those will be killed by rate hikes, but that's actually a good thing in the long run.
