It is a modern fable in China: an American nanny bought a house for herself on mortgage, and paid off her debt when she died; a Chinese nanny, on the contrary, saved up all her life and bought a house when she died. The result? The American nanny worked all her life and enjoyed her housing, while the Chinese nanny worked all her life to buy a house that she had no chance to live in.
The wisdom is that one should borrow and consume, and worry about payments later. The Americans have done this all along, while the Chinese are gradually shaking off their saving habits. The assumption is that the ability to pay is guaranteed for life. And of course, we all assume that when we need to borrow money, we can always find a lender.
If I wrote this a year ago, I might still thought that the above assumptions were right, and I might wish to have an American life-style myself. But now? Where is the American nanny before she dies? We come to realize that the ability to pay is not guaranteed, and that if the Chinese nanny doesn't save in the first place, the American nanny may well find it hard to get a mortgage.
Mark Thoma asked "Who's the Villain in the Crisis?" Now what do you think? The American nanny who borrowed too much? The Chinese nanny who saved up too much for the American nanny to borrow? The broker who channeled the savings?
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