“There’s far less demand for debt as economies contract. ”
yes, but is demand destruction outpacing supply destruction. i don’t think so, demand destruction is being driven by supply destruction in this case;
debt defaults destroying dollars causing exodus from debt instruments decreasing supply even more causing demand destruction via credit, job and wealth destruction.
again, fed intervention is what caused mort rates to dump from 6.5 to 4.5 percent. hls pointed out that the intervention is losing influence because rates have risen back up to 5 from the low of 4.5. the rate manipulation is an attempt to spur demand and not the other way around; that demand destruction has caused banks to offer enticements.
edit: actually, hls was not pointing out the increase in rates, rather a decline. i just read it that way since i had the fed actions in mind, i guess.
note, despite a paper rate of 0%, it is still effectively infinite if no one can qualify for the loan. stricter standards are both risk mitigation and supply contraction; banks do not want to and cannot afford to lose more money, no matter what the offered rate.
“Rates tend to go up in a growth cycle and down in a bust.”
at the tail end of a growth/contraction period, you may see a reversal as the economy comes *out* of the prevailing trend. note that when this shit storm first reared in spring of 2007, rates were on the way up.
