[US Fed Raises Benchmark Interest Rate by 0.75 Percent!]
[Fed Leans Towards Additional Rate Hikes]
[McClay Shock! How Far Will the Impact Go?]
[What Does the December Benchmark Rate Hike Mean?]
[Emerging Market Stocks: Santa Rally Now Hard to Expect]
[US Treasury Department Appears Flustered by Unexpected Hike]
[The White House's Reaction?]
The shock of the US benchmark interest rate hike swept across the globe. The size of the increase was a problem, but many also assessed the timing as the worst possible.
Everything about a company is shown through its accounting. Profit and loss are determined by the exchange rate on the closing date. Therefore, it was an open secret that central banks around the world finely adjusted their exchange rates at the end of the year.
Just because a company is American doesn't mean it only produces and sells in the US. If emerging market exchange rates plummet, the revenue and net profit generated in those countries also decrease.
Screams erupted from all sides.
"What on earth is the Fed thinking?"
"If they were going to raise it, they should have done it in January."
"What kind of crazy stunt is this, right before the year-end closing?"
The shock to financial companies was even greater, and the bond market was also thrown into chaos.
Generally, bond prices move in the opposite direction of interest rates. That is, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise.
Just because the benchmark interest rate moved by 0.75 percent doesn't mean bond prices also move by 0.75 percent. Even with a slight change in interest rates, bond prices fluctuate by tens of percent. Bond investors felt like they had been struck by lightning with this rate hike. It was said that funds with a large proportion of bonds had coughed up all their profits for the year.
Of course, many people had predicted an interest rate hike.
But everyone thought it would be a gradual increase of 0.25 percent after the new year, not a sudden, large increase in December.
When you pull a chain hard, it's not the point where the force is applied that breaks first, but the weakest link.
The US stock market fell by only 3 percent, but emerging markets suffered a much greater shock. Money flows from places of low return to places of high return.
As investors sold emerging market stocks and converted them to dollars to exit, emerging market stock markets and currency values fell sharply. The Argentine peso, already experiencing a financial crisis, plummeted by more than 50 percent in one day, and the Brazilian real also fell by 25 percent.
Some countries even announced measures to limit the amount of currency exchange per person to defend their exchange rates.
To prevent capital outflow, central banks in each country must also follow the US and raise interest rates. Emerging countries, from India, Brazil, Vietnam, Thailand, Indonesia, to the Philippines, hurriedly announced benchmark interest rate hikes.
The Bank of Korea also held an emergency meeting. After a three-hour meeting, BOK Governor Lee Hyun-joon announced the results of the meeting with a firm expression and a calm voice.
"Just because the US raises interest rates doesn't mean we must follow suit. South Korea has sufficient foreign exchange reserves and a continuing current account surplus, so there is little concern about capital outflow."
But he also added a word.
"In preparation for any unforeseen circumstances, we will closely monitor the financial markets and respond swiftly if a crisis occurs."
Although he said there was no problem, it was practically lip service to calm market anxiety.
South Korea's interest rate was already lower than that of the US. But with this Fed rate hike, the gap widened to more than 1 percent.
Experts predicted that the benchmark interest rate, currently at 1.5 percent, would be raised by at least 0.5 percent, and as much as 1 percent, at the next Monetary Policy Committee meeting.
***
Over three days, more than $300 billion in market capitalization evaporated from the world.
The Korean economy was also not immune to the shock.
The stock market had been on a continuous rise, and as there had been controversy about it being at a peak, foreign capital began to flow out like an ebbing tide. The index had already fallen by nearly 5 percent, and the exchange rate was also fluctuating.
Fortunately, South Korea has a continuous current account surplus and sufficient foreign exchange reserves. Even if a crisis occurs, it has the stamina to withstand it to some extent.
But there are many countries that are not in the same position. Not only emerging countries, but also developed countries in the Eurozone were watching this situation with serious eyes.
As exchange rates rose and import prices soared, fierce protests erupted in South America. Riots broke out in Venezuela, which was already in a state of default, and movements for regime change also occurred in Bolivia and Chile.
As the Chinese economy cooled rapidly and rumors began to circulate that Argentina and Greece would soon declare default, anxiety in the global financial markets intensified.
Governments around the world declared that they would do everything in their power to stabilize the financial markets, and the President of the European Central Bank said, "The Fed should approach the benchmark interest rate hike cautiously, considering the impact it will have on the global economy." However, even in the midst of this confusion, Chairman McClay announced that he would not bend his stance on raising interest rates.
***
Until a few days ago, the world stock market was on the rise, and investors were buying stocks in anticipation of a year-end rally.
But in an instant, the mood reversed.
When it's rising, rosy forecasts pour out endlessly, but when it's falling, all sorts of pessimistic forecasts pour out. Optimism suddenly vanished, and pessimism filled its place.
The key now is how far the Fed will raise interest rates. Although opinions were divided among experts, the general consensus was that it would be difficult to have more than one or two more hikes.
President Heo Chang-min also held a meeting of related ministers and asked Deputy Prime Minister for Economy Jung Ki-soo to ensure financial market stability.
Taek-gyu clicked his tongue.
"This is really crazy. I had no idea raising interest rates was this big a deal."
"It's because too much money has been released into the market with low interest rates for so long."
If you trace the cause, it ultimately leads back to the global financial crisis.
To prevent a recession, the US not only lowered interest rates to zero but also implemented quantitative easing, directly supplying money to the market by printing it.
Normally, releasing that much money should cause hyperinflation. But the dollar is the key currency. The dollars issued by the US flowed all over the world. In other words, they exported inflation.
And now that they are trying to recover that money, problems are occurring.
Currently, the whole world is looking only at the US. This was a clear indication of the extent of the US's influence on the global economy.
I muttered to myself.
"Why now of all times? It's as if they're deliberately trying to shock the market."
Taek-gyu asked.
"Is that not allowed?"
"It's not that it's not allowed, but..."
There were some who said that the Fed was intentionally conducting a "stress test" to shock the market. But even for that, this was going too far.
There was also the view that the US was using the benchmark interest rate hike as a weapon to tame other countries. It was a strategic move to gain an advantageous position in future trade negotiations.
In any case, the benchmark interest rate hike has already happened. If you can't change reality, you have to respond accordingly.
I felt a sense of doubt.
"It's a bit strange that President Ronald is so quiet."
The Ronald I knew would never have stayed still.
The US had been enjoying an unprecedented boom since the financial crisis, and this had been a huge help in raising his approval ratings. Therefore, Ronald's position was that there should be absolutely no interest rate hikes before the re-election.
But unlike in the past, when he had reacted strongly via Twitter whenever there was talk of raising interest rates, this time he was quiet.
The US media speculated that the Fed might have had some prior communication with the administration.
So, did Ronald know and condone it?
***
A few days later.
I received a call from President Ronald.
[How have you been lately?]
"I'm doing well. How about you, Mr. President?"
Ronald let out a hearty laugh.
[Haha, I'm always the same. Christmas is just around the corner.]
We made small talk. He asked about my marriage and bragged about his son and daughter. But it seemed like there was something else he wanted to say besides such things.
Instead of asking, I listened to him and waited for him to speak.
[You don't ask me anything.]
"About what, sir?"
Ronald said in a bitter voice.
[The benchmark interest rate hike. I didn't decide on it, but everyone is busy asking me about it.]
"It's something that everyone can't help but be interested in."
Even now, if you turn on the TV, news related to this issue is flowing out. It seems to be swallowing up all other international issues.
[What do you think about the rate hike?]
"What would I know?"
[Just tell me.]
"My opinion is similar to others'. I think a hike is necessary, of course, but it's hard to understand why they raised it by such a large margin in December."
He would know better than I what kind of chaos was unfolding in various countries.
[Hmm, I see.]
From his voice and tone, I felt an inexplicable sense of anxiety.
"Is something wrong, sir?"
A long silence followed. What returned after a long wait was a single question.
[Are you my friend?]
I recalled the times I had spent with him.
He was the most peculiar president in American history. He had risen to the presidency without ever holding a single public office, and even after becoming president, he pushed his own policies.
Thanks to that maverick-like personality, he was able to save the US from the crisis of the Big One.
Whether he was a good president or not is for the American people to judge. But there was no doubt that he was my friend.
"Yes. I consider you a friend, Mr. President, and I hope you think of me that way too."
Although I couldn't see his face, I could tell that he was smiling.
[Who are you with right now?]
"Taek-gyu is next to me."
[I can trust that friend.]
Is this something that shouldn't be known to others?
After a moment, he said, as if sighing.
[As you know, I've been plagued by various scandals since I became president. The media and my political enemies have attacked me, making an issue out of everything I've done and every statement I've made.]
This is because he does not belong to the mainstream of American politics. And he hadn't lived a particularly virtuous life before becoming president either.
Women, gaffes, tax evasion, illegalities, and so on.
In a way, he had lived faithfully to his desires. He himself probably didn't know he would become president later.
Fortunately, there was nothing yet that could be called fatal.
[Among them, there is something that has not yet been revealed to anyone. But someone knows about it, and has evidence.]
"...What?"
I was shocked by those words.
"What kind of scandal is it?"
[Is that important?]
In fact, the content of the scandal is not that important. What's important is...
"How much impact would it have?"
Ronald hesitated for a moment before answering.
[It's fatal. If it gets out, you can assume the re-election is a failure. Maybe...]
He trailed off.
"Is it something that could lead to impeachment?"
The answer came after a long pause.
[It could be worse than that.]
Someone has a card that could bring down the President of the United States?
"Who is it?"
[I don't know. I haven't been directly threatened or asked for anything. But I can feel it. Right now, I can't trust anyone around me.]
I felt my throat go dry.
"What do they want?"
[I don't know that either. But it seems there are many people related to the Treasury Department involved, and it seems they don't want me to get involved in their business.]
Not everyone in the government organization follows the president's words in a disciplined manner.
Even people in the same organization have different thoughts and represent the interests of the groups they belong to.
Unlike South Korea, where public and private service are strictly separated, the US is not like that. Many high-ranking officials in the Treasury Department are from Golden Gate or J.P. Morgan, and after retirement, they move to IB or PEF for huge salaries.
It's no wonder people say that Wall Street's financial capital moves the US.
What the hell is going on? Is that why he couldn't say anything about the interest rate hike?
I suppressed the urge to scream and asked, trying to stay calm.
"Was this interest rate hike also carried out without your consent, Mr. President?"
[That's right. I only found out after seeing the announcement.]
The fact that he had told me this much must be because he trusts me.
If this conversation were recorded and leaked, it would be fatal to him. It must have been difficult for him to talk to anyone but me.
"I understand. If there is anything I can do to help, please let me know anytime."
Ronald said in a sincere voice.
[Thank you, my friend.]