The global financial market is in a fit of fear because of the “King Dollar.” As the U.S. rate hike accelerates, the value of major currencies, such as the pound, euro, yen and yuan, is breaking decades-old record lows, and major markets are in a state of chaos. Amid each country’s fierce “reverse exchange rate war” to prevent soaring prices and capital outflow, there is already a long line of crisis countries requesting bailouts from the International Monetary Fund. There is even a possibility of a “second foreign exchange crisis.” It is just bewildering how the world that was singing about overcoming COVID-19 and economic recovery just a year ago has changed so much.
What I have more difficulty understanding is the “your fault” battle in the midst of this. In an interview with the Financial Times yesterday, Raphael Bostic, the president of the Federal Reserve Bank of Atlanta, strongly criticized the British government’s plans concerning massive tax cuts. Critics point out that tax cuts could exacerbate the already severe inflation in the U.K. and damage finances, leading to a crisis in the unstable international financial market. Bostic said that the U.K. tax cuts will increase uncertainty in the global economy and will not help overcome the global economic downturn. Another Fed official was also concerned that external shocks could drive the U.S. economy into a recession, and U.S. academics also said that the U.K. is heading toward “stagflation and eventually the need to go and beg for an IMF bailout” (Nouriel Roubini, professor at New York University).
This criticism is not without merit. However, I cannot help but ask whether the U.S. is in a position to attack other countries right now. After the COVID-19 outbreak, the U.S. lowered interest rates to zero and released trillions of dollars. An inflation warning was issued late last year, but the U.S. did not change tactics, calling it “temporary.” Then, when the Ukrainian war broke out and inflation soared to the 9% range, interest rates were raised by 3 percentage points (0.25 to 3.25% per year) in six months. It is the most aggressive monetary policy in 30 years. It is hard to deny that one of the main causes of the global financial market’s current turmoil lies in the U.S.’ off-base “too late, too much” monetary policy.
Korea is truly in a dilemma. To prevent inflation and outflow of foreign capital, interest rates must be raised, but household debt, which is at an all-time high, is a burden. As seen in the IRA act,* it is not prudent to expect goodwill from the U.S. These days, the louder the crisis alarm rings, the more the importance of national power and self-reliance is realized.
*Editor’s Note: Though not specified in the original, this is perhaps a reference to the Inflation Reduction Act of 2022 (H.R. 5376).