ID :
204044
Mon, 08/29/2011 - 02:17
Auther :
Shortlink :
https://oananews.org//node/204044
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Households in trilemma Take bolder steps against inflation and debt
(EDITORIAL from the Korea Times on Aug. 29)
Households in trilemma
Take bolder steps against inflation and debt
Households are one of three key economic players together with businesses and the government. The Korean economy cannot sustain its growth without consumers' purchasing power. Now, concerns are growing that households may find themselves in deeper trouble.
Households are now in a trilemma of soaring inflation, higher debt and runaway rents. More serious is that there are few policy options to tackle the problem. This means that the trilemma is more of a structural weakness than transient shortcomings.
Mounting inflationary pressure has continued to cause pain for consumers. It shows little sign of easing anytime soon. The consumer price index (CPI) remained above the central bank's target of 3 to 4 percent for the seventh consecutive month in July. The index is even feared to surpass 5 percent this month.
The government has vowed to do everything in its power to regain price stability. But it is easier said than done. It has only taken stopgap measures. Price hikes make real income shrink, weakening purchasing power. As a result, inflation, if not checked, could create a bad cycle of reduced consumption, dwindling production and lower economic growth. A specter of stagflation is likely to haunt the nation.
Needless to say, the country cannot ensure economic sustainability without bringing inflation under control. Policymakers should realize that half-baked measures are of little help to stabilize prices. It is urgent to take timely and appropriate action, including a tighter monetary policy, to combat inflation.
Household debt has already reached a critical point where they could shake the banking system and wreak havoc on the economy if no action is taken. According to the Bank of Korea, household debt hit a record high of 876 trillion won ($811 billion) in the second quarter of the year. This demonstrated that consumers have become more indebted due to their deteriorating financial conditions.
Household debt has already emerged as a ticking time bomb. The government announced a package of measures to check the growth of the debt in June, but to no avail. This month, banks suspended the extension of new loans to consumers. The suspension might help reduce household debt. But it could worsen the financial pinch of consumers, turning them to non-bank alternatives and usurious private moneylenders.
A potential debt crisis may lead to systemic financial woes. If such a crisis becomes reality, it would be more catastrophic than the 1997-98 Asian financial turmoil. What's more irritating is that policymakers have few effective tools to solve the problems. It is naive for them to take a wait-and-see attitude and hope the economy will get better someday.
On top of this, middle- and low-income earners without homes have been forced to pay spiraling rents. In Seoul and its satellite cities in Gyeonggi Province, rents have risen by 30 to 50 percent over the past two years. In some locations in southern Seoul, rental deposits for apartments are on par with purchasing prices.
Skyrocketing rents are increasing living costs. They are also forcing tenants to take out more loans. In the end, consumers cannot avoid plunging into a deeper financial abyss. Politicians should not waste time in partisan struggles. They must work harder with policymakers to find a solution to the trilemma. They should concentrate on creating more jobs, narrowing the gap between the rich and poor and allowing people to have a fair share of economic fruits.
(END)
Households in trilemma
Take bolder steps against inflation and debt
Households are one of three key economic players together with businesses and the government. The Korean economy cannot sustain its growth without consumers' purchasing power. Now, concerns are growing that households may find themselves in deeper trouble.
Households are now in a trilemma of soaring inflation, higher debt and runaway rents. More serious is that there are few policy options to tackle the problem. This means that the trilemma is more of a structural weakness than transient shortcomings.
Mounting inflationary pressure has continued to cause pain for consumers. It shows little sign of easing anytime soon. The consumer price index (CPI) remained above the central bank's target of 3 to 4 percent for the seventh consecutive month in July. The index is even feared to surpass 5 percent this month.
The government has vowed to do everything in its power to regain price stability. But it is easier said than done. It has only taken stopgap measures. Price hikes make real income shrink, weakening purchasing power. As a result, inflation, if not checked, could create a bad cycle of reduced consumption, dwindling production and lower economic growth. A specter of stagflation is likely to haunt the nation.
Needless to say, the country cannot ensure economic sustainability without bringing inflation under control. Policymakers should realize that half-baked measures are of little help to stabilize prices. It is urgent to take timely and appropriate action, including a tighter monetary policy, to combat inflation.
Household debt has already reached a critical point where they could shake the banking system and wreak havoc on the economy if no action is taken. According to the Bank of Korea, household debt hit a record high of 876 trillion won ($811 billion) in the second quarter of the year. This demonstrated that consumers have become more indebted due to their deteriorating financial conditions.
Household debt has already emerged as a ticking time bomb. The government announced a package of measures to check the growth of the debt in June, but to no avail. This month, banks suspended the extension of new loans to consumers. The suspension might help reduce household debt. But it could worsen the financial pinch of consumers, turning them to non-bank alternatives and usurious private moneylenders.
A potential debt crisis may lead to systemic financial woes. If such a crisis becomes reality, it would be more catastrophic than the 1997-98 Asian financial turmoil. What's more irritating is that policymakers have few effective tools to solve the problems. It is naive for them to take a wait-and-see attitude and hope the economy will get better someday.
On top of this, middle- and low-income earners without homes have been forced to pay spiraling rents. In Seoul and its satellite cities in Gyeonggi Province, rents have risen by 30 to 50 percent over the past two years. In some locations in southern Seoul, rental deposits for apartments are on par with purchasing prices.
Skyrocketing rents are increasing living costs. They are also forcing tenants to take out more loans. In the end, consumers cannot avoid plunging into a deeper financial abyss. Politicians should not waste time in partisan struggles. They must work harder with policymakers to find a solution to the trilemma. They should concentrate on creating more jobs, narrowing the gap between the rich and poor and allowing people to have a fair share of economic fruits.
(END)
