Low unemployment is “the most dangerous” for high inflation, and it is expected that a hard landing will be applied to Korea’s high-inflation and low-employment system following the US.
Larry Summers, who served as Treasury secretary in the Democratic administration, argued that “inflation control requires an unemployment rate of at least 5%,” followed by a statement by the Congressional Research Service (CRS) that “a rise in the unemployment rate is necessary to quickly eliminate inflationary pressures on a significant scale. It's rare," he said, evaluating it as a hard landing or stagflation. ‘
The CRS report, "Where is the U.S. Economy Heading: Soft Landing, Hard Landing, or Stagflation?"
The report released by the US Congress on the 3rd showed concerns about the prospect of a soft landing by the US Fed, and in the face of the highest level of inflation (inflation) in 40 years, a 'double-dip recession' if a hard landing occurs despite an aggressive base rate hike said to be
The double dip in capital powers entered a recovery period after economic recession, and then the economy retreated again.
"A rise in unemployment is necessary to quickly remove inflationary pressures on a significant and rapid scale," said the Democrat's strong CRS. "It's not necessarily causation, and there were some lags, but all recessions since the 1950s have occurred after long-term interest rate hikes. "A hard landing is more common than a soft landing in today's high inflation and Fed rate hikes," he said.
“If the Fed does not raise interest rates quickly because of concerns about a hard landing, it could face a worse situation of stagflation,” the CRS report said. In a recession, there could be 1970s-style stagflation with high prices and unemployment.”
In the 1970s, stagflation in the United States caused an economic recession as inflation continued, and unemployment worsened.
On the 24th of last month, the International Monetary Fund (IMF) sharply lowered the U.S. economic growth rate this year to 2.9%, a whopping 0.8% drop in a month from 3.7% growth in April.
The International Monetary Fund (IMF) hastily cut its annual growth rate for the US next year to 1.7% in May from 2.3% in April in just one month, and plunged to 0.8% in 2024 in its annual assessment.
IMF Managing Director Kristalina Georgieva said in a statement:
In the US, the Federal Reserve raised interest rates sharply in June as well, attempting an aggressive inflation control policy to stabilize the economy, including prices.
The Wall Street Journal (WSJ) reported on the 22nd of last month that the bubble burst as the US housing market entered a recession.
According to the report, the National Association of Realtors (NAR) said that as of April, existing house prices are the lowest since July 2007. It rose to 5.78%, which is the level of the 2008 financial crisis.
The 30-year mortgage rate rose from 3.45% in January to 4.98% in April and surged to 5.78% in June.
The NAR said existing home sales fell to 5.41 million units in May and fell to 5.6 million units in April.
In Korea, the overall employment rate was 63.0% in May, an increase of 1.8%p from the same month of the previous year, breaking the record high since July 1982.
Although the unemployment rate in May of the National Statistical Office was low at 3.0%, the number of new hires increased by 178,000 in the health-social welfare service industry, 120,000 in the transportation warehouse, and 99,000 in the public administration/defense social security administration. showed the epitome of unemployment
In particular, the increase in employment due to government subsidies is 49% in their 60s, and the increase in those in their 30s and 40s due to the industrial structure is extremely low, aggravating the hard landing of the high inflation and low unemployment system.
Former Treasury Secretary Larry Summers said in an interview with the Wall Street Journal on the 27th of last month that the U.S. economy would have difficulty avoiding a 'secular stagnation', saying, "If the U.S. is going to keep up with inflation, it will have to bear the unemployment rate rising above 5%." said.
“I see the probability of a structural long-term recession at around 60%,” he said.
Korea's energy imports in the first half of the year to June doubled to $87.9 billion from $46.9 billion in the same period of the previous year, setting a record high of $10.3 billion in trade deficit.
As the government's export-led policy has been strengthened, the economic stimulus policy supported by chaebols, which increased imports by 26.2% ($360.6 billion) and exports by 15.6% ($350.3 billion) in the first half of the year, is further increasing inflation.
In the first quarter, Samsung Electronics' inventory assets, known as national stock, increased to 498,47.7 billion won, a whopping 53.9 percent increase from the same period last year (32.377.5 trillion won).
Samsung Electronics also had an inventory of 14,692.9 billion won in the first quarter, and the inventory turnover day in the second quarter was 94 days, up more than 50% from an average of 60 days.
Korea's high inflation rate of 5-6% is highly likely to be higher than the US inflation rate of 8.6% if one-third is added to the cost of self-living, which was deliberately excluded.
The Bank of Korea governor seems to have missed the timing of the rate hike by sticking to 'industrial restructuring and economic stimulus through low interest rates' from the beginning of his inauguration.