3 ms·

> when rates rise, people tend to use their savings to pay down any debt Why would a rational actor with 2% mortgage (in USA fixed rate) pay it down early, whe

• nly 3y ago
  Well, maybe the US is a special snowflake wrt to mortgages and that was a bad example. Most of the world doesn't have the luxury of fixing their mortgage debt for 30 years or have a Fannie and Freddie to support them. Plain old businesses also have to tighten their belts and pay down their debts as well though. My broader point is it's all a zero sum game. Almost all the money in existence exists because someone wrote a loan. The existence of debt or the lack of deposits is not inherently a problem. illiquidity isn't a problem if nobody wants to move their money, and interest rates rising isn't a problem if it's accompanied by inflation which will drive up asset values and wages (which support lending)
• kasey_junk 3y ago
  They absolutely wouldn’t because the US has one of the most regressive subsidies on mortgages in the world. But! Banks don’t (usually) hold mortgages. They sell them to Fannie/Freddie the actual agents responsible for the regressive tax. So banks will have mortgage exposure in the form of mbs, but those are not structured to be extremely long dated.