US should learn from South Korea’s IMF crisis

[dbapig]

Interesting article about lessons US should learn from South Korea’s 1997 Asian currency crisis

Sorry NYT requires registration (free) to read but some excerpts.

The Asian currency crisis is known popularly here as the I.M.F. crisis because the danger of economic collapse forced South Korea to swallow a tough bailout package from the International Monetary Fund that closed big banks and industrial companies, led legions of workers to be laid off and prompted citizens to donate their gold to the national treasury. It was a collective trauma that is remembered here on the scale of the Great Depression in the United States.

“Korea has many differences with the United States, but they certainly did financial reform right,” said Barry Eichengreen, a professor of economic history at the University of California, Berkeley. “Korea under the I.M.F. did radical surgery.”

Still, economists say, South Korea’s hard-landing approach can offer pointers to the United States, especially at a time when Republicans have taken over the House of Representatives with vows of “restoring fiscal sanity.” One such lesson, they say, is to avoid relying too much on stimulus spending and to make painful structural changes so that the economy can find its natural bottom and resume its growth. Another is to make the changes quickly and decisively to restore the public’s faith.

Mr. Eichengreen and other experts said the most noteworthy changes came in South Korea’s then-crippled banking industry. The government closed or restructured 12 of the 32 largest banks and spent about $60 billion to write off bad loans and replenish the cash reserves of the remaining banks. The Korea Asset Management Corporation, a public fund, bought about two-thirds of the problem loans on the banks’ books, freeing up capital to restart a virtuous cycle of lending.

By contrast, analysts fault Washington for keeping many struggling banks afloat after the subprime-lending fiasco and for failing to clean up enough of the mortgage-related securities that are clogging the American financial system.

[EconProf]

Good points about how South Korea fixed its problems by thinking long-term. Instead of monetary and fiscal sugar fixes to stimulate their economy, they took the tough medicine up front and got the problem behind them. That fits what I know about the Korean mindset.
This is the kind of character that I’m afraid americans are no longer capable of. Our politicians, whom we love to blame, are merely reflecting what our public wants.

[EconProf]

Good points about how South Korea fixed its problems by thinking long-term. Instead of monetary and fiscal sugar fixes to stimulate their economy, they took the tough medicine up front and got the problem behind them. That fits what I know about the Korean mindset.
This is the kind of character that I’m afraid americans are no longer capable of. Our politicians, whom we love to blame, are merely reflecting what our public wants.

[EconProf]

Good points about how South Korea fixed its problems by thinking long-term. Instead of monetary and fiscal sugar fixes to stimulate their economy, they took the tough medicine up front and got the problem behind them. That fits what I know about the Korean mindset.
This is the kind of character that I’m afraid americans are no longer capable of. Our politicians, whom we love to blame, are merely reflecting what our public wants.

[EconProf]

Good points about how South Korea fixed its problems by thinking long-term. Instead of monetary and fiscal sugar fixes to stimulate their economy, they took the tough medicine up front and got the problem behind them. That fits what I know about the Korean mindset.
This is the kind of character that I’m afraid americans are no longer capable of. Our politicians, whom we love to blame, are merely reflecting what our public wants.

[EconProf]

Good points about how South Korea fixed its problems by thinking long-term. Instead of monetary and fiscal sugar fixes to stimulate their economy, they took the tough medicine up front and got the problem behind them. That fits what I know about the Korean mindset.
This is the kind of character that I’m afraid americans are no longer capable of. Our politicians, whom we love to blame, are merely reflecting what our public wants.

[dbapig]

One excerpt that caught my attention:

———–
The dollar’s status as the world’s reserve currency also gives American policymakers options that were not available in 1997 to South Korean officials, whose most immediate problem was a collapse in the value of their currency, the won.
———–

Basically, South Korea had to make the tough decisions because they couldn’t print $$$ on their own. US can keep printing $$$ to buy oil/pay-interest-on-debt/etc but South Korea didn’t have the option.

Ultimately one key advantage US has enjoyed (printing $$$ as world currency) for decades might be the destructive drug that will take everything away that US has enjoyed for a long time.

[dbapig]

One excerpt that caught my attention:

———–
The dollar’s status as the world’s reserve currency also gives American policymakers options that were not available in 1997 to South Korean officials, whose most immediate problem was a collapse in the value of their currency, the won.
———–

Basically, South Korea had to make the tough decisions because they couldn’t print $$$ on their own. US can keep printing $$$ to buy oil/pay-interest-on-debt/etc but South Korea didn’t have the option.

Ultimately one key advantage US has enjoyed (printing $$$ as world currency) for decades might be the destructive drug that will take everything away that US has enjoyed for a long time.

[dbapig]

One excerpt that caught my attention:

———–
The dollar’s status as the world’s reserve currency also gives American policymakers options that were not available in 1997 to South Korean officials, whose most immediate problem was a collapse in the value of their currency, the won.
———–

Basically, South Korea had to make the tough decisions because they couldn’t print $$$ on their own. US can keep printing $$$ to buy oil/pay-interest-on-debt/etc but South Korea didn’t have the option.

Ultimately one key advantage US has enjoyed (printing $$$ as world currency) for decades might be the destructive drug that will take everything away that US has enjoyed for a long time.

[dbapig]

One excerpt that caught my attention:

———–
The dollar’s status as the world’s reserve currency also gives American policymakers options that were not available in 1997 to South Korean officials, whose most immediate problem was a collapse in the value of their currency, the won.
———–

Basically, South Korea had to make the tough decisions because they couldn’t print $$$ on their own. US can keep printing $$$ to buy oil/pay-interest-on-debt/etc but South Korea didn’t have the option.

Ultimately one key advantage US has enjoyed (printing $$$ as world currency) for decades might be the destructive drug that will take everything away that US has enjoyed for a long time.

[dbapig]

One excerpt that caught my attention:

———–
The dollar’s status as the world’s reserve currency also gives American policymakers options that were not available in 1997 to South Korean officials, whose most immediate problem was a collapse in the value of their currency, the won.
———–

Basically, South Korea had to make the tough decisions because they couldn’t print $$$ on their own. US can keep printing $$$ to buy oil/pay-interest-on-debt/etc but South Korea didn’t have the option.

Ultimately one key advantage US has enjoyed (printing $$$ as world currency) for decades might be the destructive drug that will take everything away that US has enjoyed for a long time.

[Author]

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