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Can someone correct me if I'm wrong? What I suppose this means:
Raising rates makes borrowing harder so buying houses and refinancing mortgages are more costly.
Raising rates also decreases money supply because loans are harder to come by. Any foreclosure spree / calling in loans will contract the money supply further.
When the money supply is lowered, the economy shrinks because there is less liquidity between producers and consumers. This causes a recession or depression depending on the severity of the contraction. Markets like housing and stocks will follow, accelerating the decline.
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[–] coles-law 0 points 1 point 1 point (+1|-0) ago
Can someone correct me if I'm wrong? What I suppose this means:
Raising rates makes borrowing harder so buying houses and refinancing mortgages are more costly.
Raising rates also decreases money supply because loans are harder to come by. Any foreclosure spree / calling in loans will contract the money supply further.
When the money supply is lowered, the economy shrinks because there is less liquidity between producers and consumers. This causes a recession or depression depending on the severity of the contraction. Markets like housing and stocks will follow, accelerating the decline.