AFP is reporting that a popular Korean blogger was arrested because he criticized the monetary policy of the current Lee administration. The best part was, he was arrested for not having professional credentials — he was a self-taught finance commentator. He had become extremely popular in part because he had called the housing bust that occurred there (there was a speculative bubble in Korea) as well as the huge depreciation in the currency, and he criticized the “loose” response by the administration (e.g., subsidies).
Wouldn’t you be demanding your money back from the institutions that taught you finance when a guy that was self-taught accurately predicted some big moves?
While the arrest is somewhat surprising, Korea’s underlying problems have not gone away since September. The currency (Won) was the worst performer in Asia last year and only recovered at the end because the central bank and government institutions bought the Korean Won and sold stockpiles of dollars. In fact, at the beginning of the year, the Won continued its descent in part because “monetary authorities” stopped trying to spend as much USD to defend the currency.
In addition, Korean Development Bank (a large state-owned bank) and the state-run Pension Fund (the largest institutional investor) bought huge shares of faltering firms, propping them up and preventing them from liquidating, thus sending their stock market shares artificially higher. Plus, the central bank continues to lower rates, to a record low, to “bolster” the GDP — yet it effectively destroys the value of the currency. And any attempt to raise rates, to encourage savings, would undermine the governments work at propping up zombie firms (sounds like the US?).
The only saving grace is that the US Fed created a swap agreement with them, yet Korea has blown through that and wants to revise it upwards.
Koreans tried to live above their means, racking up huge amounts of personal debt and saving very little. On example is Ssangyong, a large Korean carmaker, that went into receivership today because no one has any money to buy cars (just like Americans). In addition, as I predicted would happen, the administration is having one hell of a time trying to privatize state enterprises and ratify the US free-trade agreement. As a consequence, the benefits of liberalizations that could help the macro economy won’t come into fruition when the Hermit Kingdom needs it the most.
So, I stand by my earlier long-term bearish outlook on the bonds of corporate equity players and sovereign institutions.
See also: So that’s why they’re screwed
Will this be as low as it goes?
How low will it go?
A small world in the land of the morning calm