And speaking of Developed Economy's NIRP and a Global ZIRP, South Korea’s Bank of Korea (BoK) just panicked, it chopped interest rates to record low! Korea's Zirp now looking for a NIRP!
you can see the interest rate chart here
South Korea’s external trade have been taking a hit…
Exports have been trending down…
As with imports…
Since merchandise trade account for nearly 80% of GDP, a slowdown in external trade affects their GDP
Also industrial production has also been down…
so again the net result has been a slowdown in gdp…
yet private sector loans continue to materially grow…
And this only aggravates the balance sheet conditons of South Koreans households whom have already been heavily leveraged.
So why wouldn’t the BoK panic? With the economy trending down, given the huge debt level, just how will heavily leveraged households be able to meet their financial obligations?
Thus the BoK slashed rates in order to ease such debt burden (which represents a subsidy to borrowers) while at the same time allow borrowers easier access to credit (in the hope that balance sheets of banks have been impervious to the likelihood of increasing accounts of bad credit). Again HOPE is not a strategy.
As a side note, I do not share the view that such actions have been designed as to engage in acurrency war.
Aside, housing prices have begun to sink.
And this would reduce collateral values, as well as, diminish household option to use the housing channel to raise financing (by sales). If Koreans resort to further selling, then housing deflation will only accelerate. Additionally falling collateral values could mean that financiers may ask debtors to either increase collateral inputs or force a call on loans. This will also put pressure on housing prices.
You see, the BoK’s room to further kick the proverbial can down the road appears to be narrowing fast. So the increasing recourse to a desperation policy.
Well at least there still is a buoyant stock market, which is likely the remaining option for Koreans to eke some returns. Perhaps much of the latest borrowing have been funneled here.
That’s of course, until such windows also shuts too
You see now why George Soros sees a global market crash and Asia equally a sell????
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