Good news (kind of). According to Finance Minister Kwon Ok-kyu: “The direct impact of the bad debts from the subprime mortgages on Asian financial institutions should be limited, because the proportion of Korea’s exports to the U.S. nearly halved in the past decade, and the export ratios of China and southeast Asian nations member states to the U.S. have also dropped.” however the NY Times says “Finance leaders from the world’s wealthiest nations warned Saturday that global economic woes could get worse from the slump in the American housing market”.
Maybe my Won is looking better now?
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Uh… I don’t know where this Kwon Ok-kyu got this economics degree from but he’s just flat wrong. I don’t think he’s ever heard of the term “global contagion.”
However, the fact that Korea has moved much of their exports from the U.S. and Europe to China and the Middle East does help somewhat.
The dude has himself all mixed up. The impact of subprime on any financial institution, Asian or otherwise, is in direct proportion to how many US mortgage-linked CDO’s that institution is holding on to.
The export mix relates to the exporter’s GDP, which is a broad economic measure, and includes services provided by financial instutions, but is not limited to them.
Decoupling is a theory that is now being tested. It goes like this: because many of the world’s exporters now export relatively less to the US, they are not as vulnerable to a US slowdown. Maybe so, maybe not. I think it’s only partly true, and by partly I mean less than half true. If he thinks that somehow Asia, OPEC and the EU are going to keep merrily trading and prospering together while the US goes through a 2-year recession in relative seclusion, then he has no business being finance minister of an OECD economy.
AND FURTHERMORE!!
Even those who believe in decoupling acknowledge that the foundation of the theory lies in the assumption that some other nation’s consumers will rise to meet the falling demand from US consumers. That’s a hard pill to swallow.
For NE Asian consumers to do that, we’d need a combination of things: lower interest rates (which would increase already-high inflation), more open trade (so that consumers have more things to consume, and at lower prices), and a political will to drop the huge trade surpluses that these economies have come to expect is their right. Also, a pretty big change in cultural mindset, away from household-level saving and toward spending. Pretty much the same goes for Europe’s consumers as well, minus the trade surpluses.
Exactly guys, but, gee, the sun is bright and shining, even if it makes my eyes hurt after the first few seconds I won’t see anything in a minute and “Everything’s Worse in a Wonderful Sort of Way.” um-pah, um-pah, um-pah, um-pah, . . .
WTF?
Linkd is right-on on this one, I wouldn’t trust Finance Minister Kwon Ok-kyu with 1000 won. Kwon is being overly-optimistic here in downplaying the subprime mortgage securities Korean banks have acquired and focussing on its proportionally fewer exports, which isn’t saying much in Korea’s export-oriented growth market.
If Mr. Kwon were to be more objective (or less nationalistic), he would realize that the very people who last year bought into the trendy theory of decoupling (i.e. an economy can survive independent of outside influence) have been burned. When the US recession hit, “decouplers” placed their investments overseas, only to be hit twice as hard by the US recession’s ripple effect, with the worst experienced in emerging markets and developed (i.e. globalized) economies like France and Japan.
The International Herald Tribune says, “As trillions of dollars were wiped off the value of global stocks last week, “decoupling” became the latest big idea to shrink dramatically when tested in the real world.” This includes the managing director of the IMF, Strauss-Kahn, who yesterday said that the theory of decoupling was “misleading.”
He went on to say that, in reality, “The linkages between the financial and real sector, developed and emerging markets, are much more complex than they were before.” Mr. Kwon, your la la land is a lonely island indeed.
I think Mr. Kwon is either not being objective in assuming Korea could survive independent of the world, or simply ignorant and duped by the reality of many financial institutions being less-than-transparent in their bookkeeping.
Elgin, I hate to be the party pooper, but as a former decoupler myself who recently lost a couple bucks on the New York Stock Exchange, but the only “good news” here is that Mr. Kwon is retiring in 2 weeks.
Yes, I know “boshintang”, thus the idiot-happy musical thread title. I read now (NY Times) that the prime loan market is being negatively affected in the U.S. now and that is worrisome. I am anticipating problems here though many seem to feel happy for no apparent reason(?).