Inflation

Ten Reasons Why I Dislike Korea

There are plenty of reasons to like Korea, and there are plenty of reasons to love Korea, but it has to be said there is an equal number of reasons to dislike Korea.

I won’t call them the sunshine press today because I know that they are also prone to sharing the overcast afternoon news and the even more miserable dark November evening where it pisses down for what feels like a week news, but the Korean blogosphere has been up to its naughty tricks again. This time it has started to talk about reasons why Korea is worth loving, or liking…or tolerating…etc. That fellow Roboseyo whom I keep hearing about has the lowdown here.


Dear World, TOLDYA so back off. Love, Bank of Korea

You Should Get Credit For Avoiding Huge Mistakes
This is what the Bank of Korea should be thinking and saying out loud. So, the Seoul Gyopo Guide will say it for them. Let’s see, if the Bank of Korea listened to public pressure, and didn’t stick to their beliefs, just where would the Korean economy, and the KOSPI be? If you had not noticed, the stability of the global economy at large is very much in question at the moment. One of the most exposed economies to the state of the global economy? You got it. South Korea.


When Do We Call it the Mother-Of-All-Wars on Inflation?

Lots of Bluster, Unimpressive Results
Inflation continues in Korea, as expected. The Seoul Gyopo Guide suggested that the “war on inflation” declared by the Korean president was a pronouncement made far too late, and Korea faced a tenuous foreign exchange rate/interest rate/inflation conundrum. You cannot lag behind inflation, that isn’t how it works. Why? The reason is that in addition to the idea of actual inflation, there is the notion of expected inflation. In fact, one source of actual inflation in Korea, high energy prices (oil), has declined by over 10% over the past two months, as the Middle East tensions have been mitigated by the fear of a slowdown in global economic growth. However, expected inflation rages on, and as such, companies and people continue to fear inflation, which makes it a self-fulfilling prophecy of sorts.


Bank of Korea to Everyone: Eff You, ‘Nuff Said

Bank of Korea Raises Interest Rates
Read other posts on this blog: the Bank of Korea has a difficult job. It meets every month to determine the path of interest rates. The financial markets attempt to predict what the Bank of Korea will do, and financial instruments, including the value of the Korean Won, move in anticipation of policy adjustments. This happens with every currency around the world. Some people believe that transparency with respect to the scope and timing of interest rate changes is important. WRONG. Independence, and the element of surprise are far more important elements that the Bank of Korea should fight hard to retain. By taking the market by surprise this week, it has done that. Bravo to the Bank of Korea, as it has collectively said to the world: back off.


Korea’s Indebtedness Is A Problem

Rising Interest Rates & High Debt Levels: A Bad Combination
The Seoul Gyopo Guide has been pointing out two areas of concern for the Korean economy: lower real estate prices and heavy indebtedness occurring as a result of inflation the high cost of living. The Dong-A Ilbo pointed out that indebtedness in Korea has soared.

Bank of Korea’s Difficult Task Continues
The Bank of Korea (BOK) has had an unenviable task. Inflation has increased, in part because import prices are high. Why is that? The Korean Won is weak. However, that same, weak Korean Won encourages exports of Korean-made products. Usually, central banks use the level of interest rates to dampen inflation. The BOK has been widely expected to continue to increase interest rates. However, at the same time, the BOK has been believed to have been intervening in the foreign exchange markets in order to weaken the Won. In short, the Bank of Korea is in between a rock and a hard place. Recent actions suggest that the BOK is trying to have it both ways.


Korean Food Inflation Highest in OECD

Food Inflation at 11.6% Over One Year
A number of headlines from the news, who are telling us what we already know. Inflation is getting to be very painful in Korea.
Here are the headlines:

The difficult balance among inflation, foreign exchange rates, and interest rates continues.  As the first two articles correctly state, much of the source of inflation is due to supply difficulties.  The only way to combat supply issues, when those supplies originate from foreign countries is to have a stronger currency.  A stronger currency is usually correlated with higher interest rates.  The difficult position posed by this combination has already been explained early this year, and can be reviewed here.

Japan’s Tragegy = Bank of Korea’s Opportunity? Just Maybe
Oddly, the earthquake may provide the BOK some needed flexibility. How is that? Well, the fact is the Japanese will need to buy the Yen. The reason is that Japanese will need to bring back money back to Japan in order to pay for the massive human tragedy. Insurers will need to pay claims denominated in the Yen. In short, there will be demand for the Yen over time. Since the JPY/KRW exchange rate is the real mechanism through which Korean conglomerates have benefited, the Bank of Korea can allow the Korean Won to strengthen versus the USD, while not necessarily strengthening against the Japanese Yen. The result would be stronger purchasing power for the Korean Won to pay for more expensive raw materials and imported food. Of course, it cannot be that simple, and it will not be. The impact of the Japanese tragedy on global demand for end products (including Korean-made ones) is unknown. Nevertheless, the Bank of Korea may be able to allow a stronger Won in order to aid against the obvious inflationary pressures facing everyday Koreans.


Private Lenders’ Profits Growing in Korea: Not Good

Growing Profits is Good, Right? Not So Fast
This seemingly innocent post here reported that the interest income earned by private lenders in Korea has risen handsomely. The five largest private lenders, A&P Financial Co. (Rush & Cash), Sanwa Money, Welcome Credit Line, Lead Corp. and Baro Credit, posted a greater than 20% increase in interest income during 2010. The article also reported that smaller private lenders’ interest income rose by over 30% during the year. Well, herein lies the problem.


Rising Interest Rates Increases Koreans’ Cost of Living

Koreans’ Cost of Living is a Growing Problem


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