[The Editors' Verdict] Yeongkkeul, Byeorakgeoji, Byeorakgeoji, and Interest Rates

The year was challenging for the world, including South Korea, due to the novel coronavirus infection (COVID-19). Around May, most domestic and international economic forecasting institutions seemed to have predicted economic growth rates under various scenarios, assuming a resurgence in winter around December. In South Korea, citizens have been preparing for the initial outbreak of COVID-19 since March. Even though a resurgence began at the end of November, people managed by recalling the experience from March and practicing social distancing and other preventive measures.

This year's economic growth rate is not worse compared to the countries of the Organisation for Economic Co-operation and Development (OECD). The priority is the people's survival through quarantine, and it is reasonable to consider that the time lag from China, where the virus started, to neighboring countries also affected the economy. Given that vaccines and treatments currently developed are being administered, our response can be seen as delayed. Next year's economic growth rate also depends on the duration of COVID-19. The sooner COVID-19 ends through quarantine or vaccines, the more our economy's recovery resilience, though low, can rise to the high 2% range. However, if COVID-19 prolongs, this cannot be guaranteed, and a growth rate in the high 2% range would be near the bottom among OECD countries. Naturally, this is because comparisons are made with the same period last year or the previous year. Nevertheless, since growth is occurring, it inevitably affects inflation and interest rates.

Despite the poor economic growth rate, asset market prices continue to rise. This has led to terms like 'Yeongkkeul' (borrowing to the limit), 'Bittou' (investing with borrowed money), and 'Byeorakgeoji' (sudden pauper). Especially, housing prices in major areas have nearly doubled within four years. Since people cannot buy houses through their earnings alone, they resort to Yeongkkeul.

In other words, when buying a house, people use all possible loans such as mortgage loans, credit loans, and card loans, borrowing to the extent of their soul. Many of these are naturally young people. People in their 20s and 30s cannot buy houses with earned income but still need their own homes, so they resort to Yeongkkeul. In this case, the government should have abolished benefits for rental business operators in major cities, built new houses, and supplied housing through reconstruction or redevelopment. It means that just restricting demand is insufficient. Another term in the housing market is Byeorakgeoji. Nowadays, even winning the first prize in the lottery does not make it easy to purchase a house in the Seoul area. Prices keep soaring, so if one cannot buy a house, they inevitably become a Byeorakgeoji.

Next is Bittou. Since housing prices have already reached bubble levels, even with Yeongkkeul, houses cannot be purchased. People cannot buy houses where they want with earned income alone, and since Yeongkkeul is not enough, other income sources beyond earned income are necessary. In the untact (contactless) era, the stock market is the most accessible place, and even compared to economic growth over the past 10 years, it remains low. This is where Bittou occurs. Various loans and credit financing in the stock market are used. Of course, not all stocks rise. Some people incur losses, but unlike before, the proportion of people making profits has increased.

Earlier, it was mentioned that next year's economic growth rate is expected to be in the high 2% range. A lot of money has already been injected into the market due to low interest rates, and there is almost no room left to lower rates further. This is because interest rates were cut in the short term, following foreign countries, despite not having a key currency. Since loans have already been restricted, market interest rates are rising. What will happen next year? If the economic growth rate is in the high 2% range and inflation is around 1%, interest rates, which have been managed in the short term, will inevitably be raised several times. Interest rate hikes affect many areas.

In particular, they will impact the Yeongkkeul and Bittou that have occurred so far, and there is a high possibility of a hard landing rather than a soft landing.

Professor Kim Sang-bong, Department of Economics, Hansung University

This content was produced with the assistance of AI translation services.