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superbloke
Joined: 24 Jan 2008
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 Posted: Sun Aug 31, 2008 6:15 pm Post subject: South Korea may face currency crisis! |
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An interesting article in the news today!
http://www.theaustralian.news.com.au/story/0,,24273661-20142,00.html
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South Korea may face currency crisis
THE deepening woes at Fannie Mae and Freddie Mac, badly stretched central bank reserves and a losing battle to support the won are pushing South Korea towards a full-blown currency crisis this month, analysts have said.
Heavy investment by the Korean Government in Fannie, Freddie and other US-related agency bonds has left a potentially huge liquidity problem - perhaps $US50 billion ($58 billion) - in the foreign reserve portfolio.
Some believe that Seoul might have no ammunition left to prevent a significant flight from the won. Fruitless currency intervention by South Korea - increasingly desperate-looking verbal and financial measures to fight the market trend - cost about $US20 billion in July alone.
Attempts to prop up the won come as South Korea�s household and corporate sectors are wincing from the pain of high energy prices and inflation. A summer of strikes by lorry drivers and mass street demonstrations calling for President Lee to resign reflect rising public concern that the economy is in trouble.
The intervention efforts have failed to prevent the currency sliding more than 7 per cent against the US dollar in the past month. The won is teetering at a 44-month low against the greenback and, with the central bank�s foreign exchange reserves still dwindling, economists at CLSA, the brokerage, say that it is �a game that Korea can literally no longer afford to play�.
Moreover, the situation could worsen dramatically: $US6.7 billion of Korean bonds mature this month, potentially creating vast downward pressure on the won if a large part of that sum immediately flees abroad.
Korea�s foreign exchange reserves stand at $US247 billion. The International Monetary Fund recommends that emerging market economies should hold nine months� worth of import cover, which would be about $US320 billion.
More worrying, according to Frederic Neumann, HSBC�s Asia Economist, is the level of Korea�s foreign exchange reserves relative to its short-term debt ratio. Korea�s debt maturing within a year has shot up to $US215.6 billion because of hedging against the oil price. While that is nominally within the 100 per cent coverage by forex reserves deemed necessary, the Fannie and Freddie crisis in the United States raises the question of whether any sense of security is illusory.
A large part of Korea�s foreign reserves are not government bonds but the kind of US-based mortgage-related bonds that once looked so solid. Depending on how the Fannie and Freddie situation develops, Mr Neumann said, a significant portion of Korea�s forex reserves could turn out to be extremely illiquid, leaving the country ever more vulnerable to external shock.
�The coverage ratio may in reality be not as comfortable as the authorities would like, meaning they have less with which to defend the currency,� Mr Neumann said.
Although few are predicting a financial meltdown such as the one that hit the region in 1997, recent weeks have exposed some unique vulnerabilities in Asia�s third-largest economy. The danger, Sharmila Whelan, CLSA�s senior economist, said, is that South Korea has not recognised the perils of intervention, given the country�s hefty current account deficit.
�The risk is that once investors realise how tenuous Korea�s reserve position actually is, they will start abandoning Korea in droves and send the currency tumbling,� Ms Whelan wrote in a recent note to clients.
Soaring inflation and a legacy of massive borrowings by households add an additional, potent layer of instability. Government insiders in Seoul have told The Times that there is a �credible risk� that the Korean banking system could be ravaged by a self-generated version of the credit crunch that has hit Wall Street and the City.
Analysts predict a rising tide of nonperforming loans, delinquency ratios and bankruptcies and some of the country�s large mutual savings banks are expected to go bust.
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Last edited by superbloke on Sun Aug 31, 2008 6:27 pm; edited 3 times in total |
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pkang0202
Joined: 09 Mar 2007
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| Posted: Sun Aug 31, 2008 6:24 pm Post subject: |
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1,000,000w transferred via Woori Bank on Friday.
$820 deposited into Bank of America account.
OUCH!
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Ruraljuror
Joined: 08 Dec 2007
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| Posted: Sun Aug 31, 2008 6:31 pm Post subject: |
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A summer of strikes by lorry drivers and mass street demonstrations calling for President Lee to resign reflect rising public concern that the economy is in trouble.
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WTF is a lorry? |
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blaseblasphemener
Joined: 01 Jun 2006
Location: There's a voice, keeps on calling me, down the road, that's where I'll always be
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| Posted: Sun Aug 31, 2008 6:36 pm Post subject: |
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| What's a mutual savings bank? |
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Otherside
Joined: 06 Sep 2007
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| Posted: Sun Aug 31, 2008 6:37 pm Post subject: |
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A lorry is a truck.
That's what they call 'em in Blighty (England). |
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el_magico
Joined: 14 May 2006
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| Posted: Sun Aug 31, 2008 6:48 pm Post subject: |
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| Interesting article... Thanks for posting it! |
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pocariboy73
Joined: 23 Jan 2003
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| Posted: Sun Aug 31, 2008 6:58 pm Post subject: |
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| If the banks go belly-up, do we lose our savings or does the government insure the money up to a certain amount? |
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ernie
Joined: 05 Aug 2006
Location: asdfghjk
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| Posted: Sun Aug 31, 2008 7:12 pm Post subject: |
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| sorry, but you'd be screwed. what would the government insure the money with? money? |
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endo
Joined: 14 Mar 2004
Location: Seoul...my home
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| Posted: Sun Aug 31, 2008 7:16 pm Post subject: |
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| What does this mean for us Canadians? Are we screwed too? |
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wings
Joined: 09 Nov 2006
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| Posted: Sun Aug 31, 2008 7:26 pm Post subject: |
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| Quote: |
| sorry, but you'd be screwed. what would the government insure the money with? money? |
hmm, so I guess you know NOTHING about banking at all then... |
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Lekker
Joined: 09 Feb 2008
Location: Seoul
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| Posted: Sun Aug 31, 2008 7:31 pm Post subject: |
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| endo wrote: |
| What does this mean for us Canadians? Are we screwed too? |
Considering the USD and the CAD are pretty much on par with each other, I would say yes. |
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sojourner1
Joined: 17 Apr 2007
Location: Where meggi swim and 2 wheeled tractors go sput put chug alugg pug pug
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| Posted: Sun Aug 31, 2008 7:34 pm Post subject: |
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So the Won is just going to continue to tumble in value while everything such as the job market and economy just gets worse at home and abroad? That blows.  When is there an end to this downward spiral we've been seeing since 2001? Money, business, and economics have been nothing but unnecessarily tough since then in my experience. It doesn't appear a break is in sight where we can become debt free, get ahead in savings, have a shot at home ownership, and have increasing incomes to maintain an adequate financial base. I just want enough money to make it to the end, own a property, have a permanent career opportunity lasting to the end, have adequate time that is MY time, and to be able to visit home once every 2 or 3 months while in the process of this global journey through life. I know economic conditions were not ever this difficult during the 20th century from WW2 as most people were able to have a career at one company where they climbed the ladder and then owned homes while saving. This is how and why many people in our generation are inheriting fortunes. I only hope for the best in this generation for those of us not inheriting, but it sure is disappointing with the way it's going to say the least. I guess the huge success of my previous 2 generations gave me high expectations of what my career, personal wealth, and quality of life would be in my lifetime.
If the US economy goes all the way downhill, the global economy will suffer pains like never seen before. I believe it's all tied into America and you can be sure that Bush and his corporate executive cohorts are responsible for much of the mayhem that will keep rotting our chances at wealth for many years to come long after he's left office. |
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poet13
Joined: 22 Jan 2006
Location: Just over there....throwing lemons.
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| Posted: Sun Aug 31, 2008 7:42 pm Post subject: |
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| So does anybody want to guess on how high the won will go? 1250? 1400? I'd love to see it hit 2000 so I can it high and sell it when it's back to 1200.... |
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Scotticus
Joined: 18 Mar 2007
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| Posted: Sun Aug 31, 2008 7:53 pm Post subject: |
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| sojourner1 wrote: |
| When is there an end to this downward spiral we've been seeing since 2001? |
Elect someone who's NOT a Republican, obviously. You think the economy is bad now, see what happens if we elect Grandpa and the token white chick. |
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pkang0202
Joined: 09 Mar 2007
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| Posted: Sun Aug 31, 2008 8:03 pm Post subject: |
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| Scotticus wrote: |
| sojourner1 wrote: |
| When is there an end to this downward spiral we've been seeing since 2001? |
Elect someone who's NOT a Republican, obviously. You think the economy is bad now, see what happens if we elect Grandpa and the token white chick. |
Democrats have no plan. All they are good at is pointing at things and say "this needs to be fixed."
Whole lot of good Nancy Pelosi's Democrat Congress did for the economy. Congress is the legislative branch right? Their job is to MAKE LAWS.
Why didn't the Dems in Congress see this coming when they got the majority to create legislation to prevent it?
Its real easy to point fingers and say , "It's his fault". Then again, that's what Democrats are good at. |
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