Chapter 479
Chapter 479
[The US Federal Reserve raises interest rates by 0.75%!][The Fed weighs on further rate hikes][Maclay Shock! How far is the shock?[What does the base rate hike in December mean?][Emerging market stock market, it is difficult to expect Santa Rally][U.S. Treasury Department looks embarrassed by unexpected impressions][The White House’s reaction?]The shock of the US interest rate hike has swept the world. The width of the hike was also a problem, but many evaluated that the timing was the worst.
Everything in a company is seen through accounting. The size of profit and loss differ depending on the exchange rate on the settlement date. Therefore, it was an open secret that central banks of each country finely adjust the exchange rate at the end of the year.
Not to mention companies in emerging countries that are directly affected by the exchange rate, US companies were also in an uproar.
Just because it’s an American company doesn’t mean it’s only produced and sold in the United States. When the exchange rate of an emerging country falls, the sales and net profit generated in that country also decrease.
Screams erupted from all sides.
“What do you think the Fed is thinking?”
“If you’re going to upload it, I’d rather upload it in January.”
“What kind of crazy is this at a point where we are about to settle accounts?”
The shock to financial companies was even greater, and the bond market was also engulfed in chaos.
In general, bond prices move in the opposite direction to interest rates. That is, when interest rates rise, bond prices fall, and when interest rates fall, bond prices rise.
Even if the base rate moves by 0.75 percent, bond prices do not move by 0.75 percent. Even a slight change in interest rates, bond prices fluctuate by tens of percent. Bond investors have been hit hard by this rate hike. Funds with a large portion of bonds were even said to have spit out all of their returns in one year.
Of course, there were many people who predicted a rate hike.
But everyone thought it would increase gradually by 0.25 percent after the year went by, but no one thought it would be a drastic increase in December.
If the chain is pulled hard, the weakest link is broken first, not where the force was applied.
US stocks were down only 3%, but emerging markets were much more shocked. Money flows from low-income to high-income.
Emerging market stocks and currencies fell sharply as investors sold EM stocks and moved out for dollars. The Argentine peso, already in the midst of a financial crisis, fell more than 50 percent in one day, and the Brazilian real fell 25 percent.
Some countries have even announced measures to limit the amount of exchange per person to protect the exchange rate.
In order to prevent capital outflow, central banks in each country must follow the US’s footsteps in raising interest rates. Emerging countries, including India, Brazil, Vietnam, Thailand, Indonesia, and the Philippines, have hastily announced interest rate hikes.
The Bank of Korea also held an emergency meeting. After the three-hour meeting, BOK Governor Hyun-jun Lee announced the results of the meeting with a firm expression and a calm voice.
“If the US raises interest rates, it doesn’t necessarily mean they have to raise them,” he said. As Korea has sufficient foreign exchange reserves and continues to have a current account surplus, there is little risk of capital outflow.”
Still, he added a word.
“We will closely monitor the financial market in case of unforeseen circumstances and respond promptly when a crisis occurs.”
They say there is no problem with words, but in reality, it was more of a lip service to calm market unrest.
Interest rates in Korea were already lower than those of the United States. However, the Fed rate hike has widened the gap by more than 1%.
Experts predicted that the key interest rate, currently 1.5 percent, will be raised by at least 0.5 percent and at most 1 percent at the next MPC meeting.
* * *
In three days, more than $300 billion of market capitalization around the world evaporated.
The Korean economy could not be free from shock.
Meanwhile, the stock market continued to rise, and as there was controversy over the peak, foreign capital began to flow out like an ebb. The index has already fallen close to 5 percent, and the exchange rate fluctuates.
Fortunately, Korea’s current account continues to be in surplus and has sufficient foreign exchange reserves. Even in a crisis situation, it has the stamina to endure to a certain extent.
However, there are not a few countries that do not. Not only emerging countries, but also developed countries in the Eurozone looked at this situation with serious eyes.
As the exchange rate rose and import prices soared, fierce protests broke out in South America. Riots broke out in Venezuela, which is already in default, and movements to resign in Bolivia and Chile also took place.
The rapid cooling of the Chinese economy and rumors that Argentina and Greece would declare defaults soon began to spread, adding to the uncertainty in the global financial market.
Governments around the world have declared that they will do everything in their power to stabilize financial markets, and the European Central Bank governor said, “The Fed should approach cautiously considering the impact of a key rate hike on the global economy.” However, despite the chaos, Chairman McClay said that he would not give up on raising interest rates.
* * *
A few days ago, global stock markets were up, and investors bought stocks in anticipation of a year-end rally.
But in an instant, the mood changed.
When it goes up, endless rosy prospects come out, but when it goes down, all kinds of pessimistic prospects pour in. Suddenly, the optimism disappears, and the pessimism takes its place.
The question now is how far the Fed will raise interest rates. Although the opinions of experts differed, the general consensus was that it would be difficult more than one or two times in the future.
President Huh Chang-min also held a meeting of related ministers and asked Deputy Prime Minister Jeong Ki-su to stabilize the financial market.
Taek-gyu stuck his tongue out.
“It’s not really a fuss. Raising interest rates would be such a big deal.”
“Because there has been too much money in the market due to low interest rates.”
If we look at the causes, it ultimately leads to the global financial crisis.
In order to prevent a recession, the US did not have enough interest rates to be lowered to zero, so it printed money and directly supplied it to the market through quantitative easing.
If you loose that much money, it is normal for hyperinflation to occur. However, the dollar is the reserve currency. Dollars issued by the United States flowed all over the world. In other words, inflation is exported.
And now that you’re trying to get that money back, you’re in trouble.
Currently, the world is looking only at the United States. This was nothing short of a clear indication of the extent to which the United States has had an impact on the global economy.
I said muttering.
“Why now? It’s like they’re deliberately trying to shock the market.”
Taek-gyu asked.
“then no?”
“It’s not going to happen, but… … .”
Some say that the Fed deliberately conducted a “stress test” to shock the market. But even so, this is too much.
There is also the view that the US is trying to tame other countries by using the key rate hike as a weapon. It is said to be a paving stone for occupying an advantageous position in future trade negotiations.
In any case, the rate hike has already happened. If you can’t change reality, you have to react accordingly.
I have one question.
“It’s kind of strange that President Ronald is quiet.”
As far as I know Ronald, he’s never going to stand still.
The United States has been enjoying an unprecedented boom since the financial crisis, which has helped tremendously to boost approval ratings. That’s why Ronald insisted that interest rates never rise until his re-election.
However, unlike the strong reaction on Twitter whenever there was talk of an interest rate hike, this time it was quiet.
The US media speculated that the Fed may have had some communication with the administration beforehand.
So, did Ronald know and condone?
* * *
a few days later.
I got a call from President Ronald.
[How are you these days?]“I am doing well. How is the President?”
Ronald burst out laughing.
[Haha, I’m always the same. It’ll be Christmas in a little while.]
We talked everyday. He asked about my marriage, and he boasted about his son and daughter. But there seemed to be something he wanted to say other than that.
Instead of asking, I listened to him and waited for him to speak.
[You don’t ask me anything.]“What do you mean?”
Ronald said in a bitter voice.
[I’m talking about raising the base rate It’s not something I decided, everyone is busy asking me.]“It’s something everyone should be interested in.”
Even now, if you turn on the TV, news related to this problem will flow. It seems to swallow up all other international issues.
[What do you think about the rate hike?]“What would I know?”
[Just tell me.]“It’s similar to what other people think. I think the raise is of course necessary, but it is difficult to understand why it was raised so much in December.”
He probably knows better than I do what chaos is going on in each country.
[Hmm, that’s right.]In his voice and tone, I felt something unknown.
“Is there something wrong with you?”
Silence ensued for a while. One question came back after a long wait.
[Are you my friend?]I remember all the things I had done with him.
He was the most unusual president in American history. He ascended to the presidency without holding a single public office, and pushed forward his policies even after he became president.
Thanks to his character as a solitary general, he was able to save the United States from the crisis of Big One.
Whether he is a good president or not is for Americans to decide. But there is no doubt that he is my friend.
“That’s right. I think of the former president as a friend, and I hope the president thinks the same way.”
I couldn’t see his face, but I could tell he was smiling.
[Who are you with now?]“There is Taek-gyu next to me.”
[If you are that friend, you can trust me.]Shouldn’t it be known to other people?
After a while, he sighed.
[As you may know, I have suffered from various scandals since becoming president. The press and enemies attacked me for everything I did and every word I said.]This is because he does not belong to the mainstream of American politics. Before he became president, he didn’t have a particularly good life.
Women, gossip, tax evasion, illegal, illegal, etc.
In a way, he lived faithfully to his desires. He probably didn’t even know he would later become president.
Fortunately, there is no such thing as fatal.
[Some of them are still unknown to anyone. But someone knows it and has proof.](Read more @ wuxiax.com)“… … Yes?”
I was surprised by that.
“What kind of scandal?”
[Is that important?]Actually, the scandal doesn’t really matter. An important thing is… … .
“What is the ripple effect?”
Ronald paused for a moment before answering.
[This is fatal. If it is known, re-election will be considered a failure. perhaps… … .]He blurted out his words.
“Is this something that could lead to impeachment?”
The answer came after a while.
[It could be worse than that.]Is someone holding a card that could bring down the president of the United States?
“Who is that?”
[I don’t know. Because I have never been directly threatened or asked for anything. But you can feel it with your skin. It’s a situation where you can’t trust anyone around you right now.]I felt my throat dry up.
“What do you want from there?”
[I don’t even know. But it seems that there are a lot of people involved in the Ministry of Finance, and they seem to want me not to get involved in that matter.]Not everyone in the government organization obeys the president’s words in a straight line.
Even people in the same organization have different views and represent the interests of the group to which they belong.
Unlike Korea, where public and resignation are strictly separated, this is not the case in the United States. Many of the high-ranking officials of the Ministry of Finance are from Golden Gate or JP Morgan, and after retiring, they receive a huge salary and move to IB or PEF positions.
After all, would it be possible to say that the financial capital of Wall Street is moving America?
What the hell is going on? Maybe that’s why he didn’t say anything about the rate hike?
I tried to stay calm, holding back the desire to scream.
“Did this interest rate hike happen regardless of the president’s will?”
[That’s right. I only found out after seeing the announcement.]It’s probably because you believe in me just because I’ve told you up to this point.
Even if this conversation was recorded and leaked, it would be fatal to him. It was probably difficult to tell anyone but me.
“Okay. If there is anything I can do to help, please let me know.”
Ronald said in a sincere voice.
[Thank you, my friend.]
