Won’t this mean that interest rates will move upwards to attract new investment money?
Right now, interest rates have gone --both-- ways, some up, some down.
Interest rates on short term Treasuries have gone to some of the lowest rates in years, as everyone buys them (driving down the rate they pay) in a mad rush to safety.
Meanwhile interest rates on anything long term or in the slightest bit risky have gone sky high (well, not yet as high as in the worst of the Carter years, but pretty high, and still climbing.)
I expect that the government will have no choice but to inflate the dollar dramatically at some point, so that they can pay off all the rapidly increasing debt load and unfunded liabilities with cheaper dollars. They just picked up another trillion dollars or so with Fannie and Freddie, and us baby boomers have just started collecting Social Security. Dollar inflation goes hand in hand with higher interest rates, even on the safest short term Treasuries.
You are correct. Interest rates on money market funds that are invested in corporate obligations like the Reserve Fund will see their rates dramatically rise to compensate and prevent people from leaving the fund.
Funds that invest solely in government backed securities will see rates fall as people flood those.
The only problem with the whole thing is that corporate American uses those short term money market instruments to borrow from. So we’ve just added a lot more interest expense to the bottom lines of corporate America trying to compete and get strong again.