[사설]Asset bubble’buzzling’, exit strategy to stop headwind is urgent

The two heads of the Korean economy, Deputy Prime Minister Hong Nam-ki and Bank of Korea Governor Lee Ju-yeol, voiced a warning message to the asset market, where money is being poured into stocks and real estate. Deputy Prime Minister Hong said, “Amid the corona crisis, the financial market has shown a stable state, but concerns about the gap between the real and the finance are growing.” The risk will be revealed in earnest this year,” he warned.

Their worries are not tiring. Last year, the economy has grown negatively in 22 years, and although the outlook for the economy is still uncertain this year, the stock market is on the rise with the KOSPI index going up and down 3000. Around the stock market, a whopping 130 trillion won, including deposits (68,287.3 billion won), is waiting for investment opportunities. Despite the government’s proclamation of the 25th real estate countermeasure, the surge in house prices that started in Seoul is driving up the prices of apartments in Gangnam and other places by returning to Seoul. The bubble in the asset market is growing rapidly, as if to laugh at the frozen domestic demand and the money drought for the vulnerable.

The rapidly expanding asset market, separated from the real thing, is a balloon filled with wind. Even if you touch the tip of the needle, it can burst at once. And the needle of our economy is a huge debt drawn by households, businesses, and governments. According to the International Settlement Bank (BIS), the total debt of households, businesses, and governments in Korea is approaching 4900 trillion won and has increased by 145% over the past 12 years until the end of June last year after the 2008 financial crisis. At the rate of increase, it is almost five times the world average (31%). The ratio of debt to GDP (Gross Domestic Product) is 101.1% for households and 110.1% for companies, a long time since it has been the subject of’attention’ in the global financial world.

In a test assuming that the BOK’s economic growth rate is below 1% by 2023 and the stock price is cut in half, the total credit loss for households and businesses is estimated to reach 67 trillion won. Apart from the damage caused by falling asset prices, it is a scenario that only losses that will be treated insolvent by households and companies will be equivalent to 12% of this year’s budget (558 trillion won). The government and monetary authorities must now take steps to counter the risks. If the exit strategy to induce a soft landing is not followed, the Korean economy may face a headwind that is difficult to handle.