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Realistically, what options are available to the Federal Reserve to prevent high interest rates that could have a devastating effect on investors?

Robert Wiedemer
July 29, 2014
Video Transcript

What the Fed is doing now is really like a Chinese finger trap-- the further you go into it, the harder it is to get back out, right? That's what they've got. They've got a situation where they want to keep interest rates low, but what's the way to keep interest rates low-- printing money, right? That's the only way you can do it and ultimately printing money is going to cause inflation. It is going to scare people. So, you're left between a rock and a hard place-- you printed a lot of money to keep rates low, if you pull back and rates go higher well you've got a real mess on your hands, right? In fact, if you try to really pull that money back out that you've already printed, rates go very, very high. We saw that before in 1980, 1981, we did that and rates went really, really high, but what was the difference? We didn't have the massive bubble in stock and in real estate prices; things were a lot cheaper back then. People tell me about... Oh, I remember I had a 14% mortgage and they paid it and that was ok, but that's because prices of real estate were so low. Imagine 14% mortgage rates with real estate prices where they are today-- it would be devastating to the real estate market.

So you're not going to be able to do what we did back then and sort of pull back. What's going to happen is the Feds basically going to continue to print money, you are going to get inflation that pushes up interest rates, and you basically got the worst of both worlds-- they're still printing a lot of money, interest rates are going up, it's not the Volcker treatment, it's well going to be the chaos treatment. It's not chaos, but it'll be a double whammy of a Fed that's basically out of control. I mean, in 1980, you had a Fed that was in control, painful, but in control. What's happening in the future, is it's simply out of control and that's a real problem for all investments, except for gold.

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