This past week, the lovely, and talented, Danielle DiMartino-Booth and I shared a discussion on the ongoing debate of why “Rates Must Rise.”  

Debt drives rates lower….not higher. Debt is deflationary. See chart below and read this: https://t.co/jHAcnuGTit pic.twitter.com/tM2a5BrIiO

— Lance Roberts (@LanceRoberts) July 14, 2017

I know..yes…the piper will be paid but in the worst possible way….you are talking about a major dislocation resulting in deleveraging.

— Lance Roberts (@LanceRoberts) July 14, 2017

For the last several years, I have produced a litany of commentary (see this, this and this) on why rates WILL not rise anytime soon, they CAN’T rise because of the relationship between debt and economic activity.

Most of the arguments behind the “rates must rise” scenario are based solely on the premise that since “rates are so low,” they must now go up. This theory certainly applies to the stock market which is driven as much by human emotion, as fundamentals. However, rates are an entirely different animal.

Let me explain my position using housing as an example. Housing is something everyone can understand and relate to, but the same premise applies to everything bought on credit.

People Buy Payments – Not Houses

When the average American family sits down to discuss buying a home they do not discuss buying a $125,000 house. What they do discuss is what type of house they “need” such as a three bedroom house with two baths, a two car garage, and a yard.

That is the dream part.

The reality of it smacks them in the face, however, when they start reconciling their monthly budget.

Here is a statement I have not heard discussed by the media. People do not buy houses – they buy a payment. The payment is ultimately what drives how much house they buy. Why is this important? Because it is all about interest rates.