'Shark Tank' star Kevin O'Leary warns soaring interest rates will cause 'real chaos' for US economy

Kevin O'Leary predicts the 'very short term' mayhem will begin this fall

"Shark Tank" investor Kevin O'Leary revealed the cold hard truth on America's housing market, Tuesday, warning that September will be the start of "real chaos" for the U.S. economy. 

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"This was inevitable. We talked about it six weeks ago, and now you're just starting to see the chips start to fall. The layering is as follows: The regional [banks] don't know yet what their capital requirements are going to be. So, their loan books have closed like a turtle in a shell," he explained during an appearance on "Kudlow."

"This gets worse before it gets better. And what's it doing to small business? Killing them right now," he warned Tuesday. 

Multi-millionaire Kevin O'Leary joined 'Kudlow' to discuss his outlook on the U.S. housing market, and economy.  (Getty Images / Getty Images)

The Federal Reserve's aggressive interest-rate hike campaign sent mortgage rates soaring above 7% for the first time in nearly two decades, cooling the post-COVID, red-hot housing market.

Rates have been slow to retreat, hitting a fresh two-decade high last week. Freddie Mac reported that rates on the popular 30-year fixed mortgage are hovering around 7.09%, well above the 5.13% rate recorded one year ago and the pre-pandemic average of 3.9%.

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Additionally, the Federal Reserve approved yet another rate hike in July, setting the key benchmark federal funds rate to the highest level since 2001. 

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US banning investments in China 'really difficult policy to execute on', says Kevin O'Leary

 O'Leary Ventures Chairman Kevin O'Leary and Public Ventures President Lou Basenese discuss Moody's downgrading banks, big tech stocks and the U.S. banning some investments in China.

O'Leary argues that the U.S.'s troubled banking market is going to cause "real chaos in a very short term," spotlighting the devastating impact some of Congress' short-sighted economic policies has had on the average American.

"What I anticipate is going to happen here, while we still have full employment which is remarkable, and you don't put any capital into the small business sector, which is 60% of the jobs in America, you're going to start to see some real chaos come September, October, November. This is an issue for Congress, Larry. It's very simple," he continued.

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"They gave all their money to S&P 500 in two acts, the Chips and Science Act and the other, Inflation Reduction Act. Not a dime for small business. A trillion for the big boys, nothing for the small guys. And the small guys, they run America, so it has to be rebalanced somewhere, Larry."

Biden talks about his "Bidenomics" economic plan on the one-year anniversary of the Inflation Reduction Act of 2022. (Photo by Scott Olson/Getty Images) (Biden speaks to guests at Ingeteam Inc. / Getty Images)

O'Leary shifted his economic contingencies to China's "dovish" economic policy, predicting that the nation's latest strategy shift could be "bad" for Big Tech stocks. \

"Lots of people, including the Europeans, have started to look elsewhere. And China's starting to realize if we've got to stay north of 4%, we need to be a little nicer to everybody around the world. That's my guess. They're not going to be as hawkish. And I think you'll see the tone die down on invading anywhere else in Asia," O'Leary explained to FOX Business' Larry Kudlo

"It's bad for tech. If we keep squeezing out tech companies from selling to them, you're going to see some correction in PE's. I agree with you, Larry, but this is now the time to force them to the table and squeeze their heads and show them the stick and get a level playing field. I'd love to see that."