It’s common knowledge that the federal reserve controls the interest rates that we pay and get on our savings. They have purposely kept them low for years, trying to stimulate the economy. With borrowed money being practically free, people are encourage to borrow and spend their way to prosperity.

The theory is that the feds can speed up or slow down the economy by regulating the interest rates. Theoretically, if they raise rates, it slows down the economy and if they lower them the economy should speed up.

That may work sometimes, but after having their foot on the accelerator for enough years, it doesn’t always work the way they plan for it to. It seems that maybe people can handle only so much debt, and after so long, they can’t keep going farther into debt.

Right now, borrowed money is close to free and in some cases, governments and corporations are being paid to borrow money. (Try to explain that one!) Even though Janet Yellen keeps talking about raising rates, the economy just isn’t strong enough to do so.

So how can the Feds lose control of interest rates? Their policies are not them only way interest rates are determined. Risk is also a factor in interest rates. For example, people with poor credit have to pay higher interest rates than other people or no one would loan to them.

The same is true of corporations and governments. If defaults rise, then interest rates will also have to rise to help cover the loses. Corporate defaults are already on the rise and if any governments have trouble paying their bond holders, people won’t lend to them unless they get a higher interest rates.

The bond market is often how interest rates are determined. The lower bonds go, the higher interest rates go. For example, if you own a $100 bond that pays $1 per year, it yields 1%. If your bond gets investors worried about whether it will get paid or not, and it drops to $50, now it pays 2% as long as it keeps paying.

So if interest rates rise because of defaults, it could escape the Feds control and go wherever the market says they should go. That my take the Feds out of the driver’s seat altogether.