A Chat with James Grant on The Looming Debt Crisis and Rising Interest Rates

The Federal Reserve's strategy of dropping its fixed-income holdings will eventually be reversed. The Fed has been selling bonds to lower its balance sheet, which is the quantity of bonds they possess. This has led to a drop in interest rates because they can't sell additional bonds to buy back their own bonds. But ultimately, they will be forced to reverse direction and start purchasing them back again.

Do you believe that we are at a stage where we need to start worrying about increasing interest rates? How do we prepare for this?

Yes, I do believe we are at a place where we need to start thinking about increasing interest rates. The reason why I believe this is due of the fact that there is so much debt out there from prior financial booms and from firms not being able to pay it off with present revenues. If interest rates rise unnecessarily, which happens if there is not enough liquidity in the economy or if traders start getting nervous about the probability that companies can afford to pay off their debts, then it could cause a recession or maybe yet an additional financial crisis like 2008-09 since Lehman Brothers dissolved and many other banks went under as well