送交者: PhonyDoctorPhD 于 2005-5-11, 21:31:10:
回答: Can anybody help with the economic problems here? 由 fengcu2000 于 2005-5-11, 16:22:01:
1. "Cash" is a relative concept. Unless all consumers
holds all their earnings as paper currency under
their pillow, cash (or wealth) affecting consumer
confidence is
Cash in bank/in assets (your current wealth) +
Expected return on your current wealth +
Expected gross future income (your future wealth)
Let's one by one look at each. First, M you have.
Yes, in case of a "deflation", one might think
people's "buying power" is enhanced, thus
consumer will have more "confident" to consume.
There is even an econ theory call Pigou effect on
this. Problem is, if people "expect" deflation,
they will choose to hold on to their money. If you
think a house selling for 1 mil will become 800k in
3 month, what would you do? You just hold on to your
cash, right? This was exactly what happened in Japan
in late 80s.
Now onto expected return. How are you going to
"invest" your money? Not under the pillow, right?
Noone will think about stocking on consumer goods
either, so no boost for game boys and computers.
One would argue that since housing market is down,
people may have less appetite for furnitures,
appliances, etc. etc.Housing market is going down,
so you'd not buy a house (if you're a house owner,
you are already a loser anyway) Will you buy stock?
Maybe, but which company will see profit going up
when noone is in buying mood? Bond? That might not
be a good choice for the government will likely to
lower interest rate to stimulate consumption, esp
the housing market, right?
Needless to say, same apply to expected future
income.
In summary, except for those few who has correctly
predicted a downturn in housing market (those who
opt NOT to own a house, AND, who simple hold CASH
in their hand BEFORE the downturn, when the housing
market is sizzling), most people may end up "poorer"
on a housing market correction. For those
"smart" few, TODAY, are they the one we would laugh
at? Imagine someone in ShangHai today holding 1 mil
cash under his/her pillow... How many are they,
really?
2. The statement seems wrong. Quite opposite,
without bankrupcy protection, debter (borrower)
would be WORSE-OFF since they simply can NOT
put the debt behind them by simply giving the house
back.
Remember, bankrupcy is a protection of the debter,
not the creditor. Someone might think the one going
"into bankrupcy", and bank takes the house back,
that is "bad" for the debter. But things are not
as simple as it seems. Say someone buys an overvalue
house (in today's market, who didn't) at 1 mil,
price goes down to 500k, the guy lost his job.
He can't just sell the house and be debt free, for
he has 500k "negative assets". If there is
bankruptcy protection, he could simply give the house
back to the bank and get a new life. Without such
law, the same guy has a 1mil debt there, forever.
For the bank, it is screwed either way for there is
no way this dear customer can comeup with 1 mil in
full.
In conclusion, let's just pray for a "soft-landing" of
housing market. Ideally, housing price will just stop
growing, and remain flat for long long long time (10 years?) as a way of adjustment. Otherwise, think
Japan & Hongkong, and that's painful. Even if
you are a frustrated buyer, don't pray for a 50%
adjustment in housing market, that could mean your
job...