How to Korean Economy responded to the US recession
As the whole universe knows, the US economic system is biggest market. The US entered a recession in December 2007 harmonizing to the National Bureau Economic Research ( NBER ) . Since 2007, the symptoms of recession have been found. However, these were revealed brilliantly in late 2008. In this state of affairs, Asiatic states were besides affected in many countries. Meanwhile, the Korean economic system, which is strongly depended on export to US, was damaged by the recession. Therefore, in this research, the subjects those are “ what is the ground US economic system got into the recession? ” and “ How does the Korean economic system response to this state of affairs? ” are traveling to be discoursing so that people may understand current state of affairs of the universe economic system, which is necessarily related to people ‘s life.
Now, the economical crisis is going the greatest issue in the universe. Alleged a recession, which started with the US economical crisis, is impacting the universe economic system. A recession is period of clip economic diminution, defined normally as a contraction in the Gross Domestic Production ( GDP ) for six months or longer. Marked by high unemployment, dead rewards, and autumn in retail gross revenues, a recession by and large does non last longer than one twelvemonth and is much milder than a depression. When a recession occurs, large companies work stoppage and so the states earn less money. Automatically, many people lose their occupations so the sum of money each individual earns is acquiring smaller. Because of this, persons, houses, companies, and states come into economical agony. All of people hope a recession would non take topographic point. However, in the existent universe, it happens. Therefore, in order to forestall this, apprehension of recession is needed.
There are many factors cause an economic system to fall into a recession. Among the causes of a recession, the chief is rising prices. Inflation is general rise in the monetary values. When there is rising prices, people start to cut down their ingestion because of the high monetary values. However, as people start to cut out the disbursement, it causes GDP to fall. Furthermore, companies lay off workers to cut down the cost of production, which increases unemployment rate. These factors combined together do an economic system to fall into a deeper recession ( Morah ) . Another cause, A borrowers start defaulting could lend a recession. When borrowers are unable to pay back their loans on places, vehicles, concerns, and recognition cards, so these could do another rising prices of a falling economic system ( Khera Communications ) . In the clip that Bankss recognition brotherhoods defaulting on their fiscal duties, could non refund loans they have taken out, this is a bad mark of the recession.
In US, the assorted factors allowed lodging market to raise the house monetary value much faster than incomes. Many people bought houses instead than put their assets in other country. It was because their wealth increased every bit long as the monetary values of houses rise. However, unluckily, the lodging market was a bubble market. Its monetary value fell quickly and so people became the hapless. This cause is explained through the sub-prime mortgage. A subprime mortgage is a type of loan granted to in persons with hapless recognition histories who, as a consequence of their deficient recognition evaluations, would non be able to measure up for conventional mortgages. Because subprime borrowers present a higher hazard for loaners subprime mortgages charge involvement rate above the premier loaning rate ( Investopedia )
The monetary value of US house s increased aggressively until 2006. Many analysts thought that mortgage loans were safe though these were hazardous and this bucked up mortgages that are more unstable. For case, people hoped mortgage could be pay back easy because the monetary value of lodging was an affectional sedimentation every bit long as it rises ( Pettinger ) . The low involvement rate, aggressive selling of mortgages and optimistic anticipations for the lodging market were combined and caused rise monetary value go houses. In 2006, the Fed ( Federal Reserve System ) increased the involvement rate to over 4 % because of inflationary force per unit area in economic system. By raising the involvement rate, many mortgage proprietors were struggle with their refund ( Pettinger ) . However, two old ages subsequently, in 2008, this mortgage rate shut up monthly payments. These payments were greater than their disposable income and they had to sell the mortgages. Unfortunately, there is no 1 wanted to purchase them in the roar. With the job of the mortgage loan, the monetary value of houses fell ; an unexpected event was happened. More and more the proprietors of houses wanted to sell their houses. The monetary values of houses decreased even more. In existent economic system, when the monetary values of house autumn, disposable income beads and the assurance of consumer for ingestion lessenings every bit good. Furthermore, it causes the lifting unemployment rate because of less production rate. Many people lost their occupation and so it became a recession to U.S ( Pettinger ) .
The job of U.S house market affected other fiscal system. Many large commercial Bankss that had invested a subprime mortgage, started to worry about roll uping of the refunds and they realized that they were confronting to great losingss. Besides, Wall Street and the planetary finance system realized the danger of loaning. The Bankss did non desire to impart money anyone. The deficit of financess in money market caused fiscal crisis. Finally, many refunds were non collected, and the Bankss saw that they list immense sum of money. Some of large commercial Bankss such as Bear Stearns, and Lehman Brothers declared bankruptcy ( Pettinger ) .
An economic system growing of a state is measured by the addition in existent GDP which is the entire dollar value if all goods and services produced by all people within the boundaries of a state during annual period. GDP increases when ingestion, investing, authorities outgo, and net export rise. However, because of the recognition crunch, monetary value of house and assurance of ingestion fell and cost of borrowing increased. Theses all contributed autumn in consumer disbursement. Furthermore, the Bankss did non desire to impart money. It caused lifting of involvement rate which discourages investing. Hence, the two factors of falling GDP dropped which means GDP decreased and so US economic system went into the bad clip that now, is called the US economic system recession.
After the US recession occurred, unemployment rate of Korea has been increased. The unemployment rate marked 3.9 per centum in February 2009 which is higher than that of in January. This figure was the highest since March 2005 whose rate was 4.1 per centum. Compare to 2008, 142000 occupations were reduced. It is largest occupation decrease since September 2003 when 189.000 occupations were laid off ( Korea National Statistical Office ) . Particularly, the unemployment rate among ages between 15 and 29 was 8.7 per centum which is demoing that younger people are enduring in the recession ( Peopledaily ) . The National Statistical Office ( 2008 ) said, “ Job losingss in December stemmed largely from agribusiness and piscary sectors where people traditionally withdraw from occupation market during the winter season. ” The idle rate growing affects consumer disbursement which is the causes of the planetary lag and Korean export market. The president of Korea Lee Myung-Bak declared making 6 million more occupations during his five-year term ( Peopledaily ) .
The US recognition crunch is going a planetary job. The US sub-prime prostration is impacting South Korea where President Lee has forced to cover with a looming recognition card crisis. South Korea besides has been sing rapid growing is existent estate and stock market merely like many other states. Aggressive loaning by South Korean Bankss to little houses left them the sudden tightening of planetary recognition markets ( Chan ) . This recognition squashing impact makes higher involvement rate for 1000000s of consumers with recognition debt. The recognition card default is closely related to the tight ingestions in international recognition markets. Through this, Korean commercial Bankss are to a great extent exposed with a loan-to-deposit ratio of 130 per centum, which is comparable to 60-80 per centum in the remainder of Asia ( Chan ) .
The Korean commercial Bankss borrowed money from abroad. However, the Bankss could non cover their rapid addition in loans. It made higher involvement rate. As a consequence, South Korea consumers and little concerns forced the higher involvement and greater fiscal loads ( Chan ) . The cardinal bank, The Bank of Korea ( BOK ) faced a similar job to that of US Federal Reserve. Equally long as rising prices rate is lifting, the cardinal bank besides should increase the involvement rate to cut down rising prices. The BOK raised involvement rate up to 5 per centum. Therefore, the investing rate fell every bit good ( Chan ) .
The South Korean export, which is closely linked to abroad demand particularly US, shrank aggressively. The US crisis has affected South Korea more earnestly than other Asiatic states ( Kitazume ) . The GDP of Korea 2008 fell 2 per centum. However, existent economic system has fallen much worse. The export decreased 34 per centum ( Kitazume ) . It is because Korean economic system depended on export by 33 per centum in 1990s, 54 per centum in 2002 and 60 per centum in 2008 ( Kitazume ) . Around 43 per centum of part of Korean exports are concentrating on five sectors such as semiconducting materials, ship building, computing machines, cars, and radio communications equipment. A slack in the US has caused demand to wither Korean production. When US GDP fell so much in 2009, Korean export besides declined together with US economic system. The South Korea is skiding into its first recession with falling of the Korean export ; little concerns, which account for major part of Korean economic system, were hit by current crisis. Many of little stores faced bankruptcy.
Today, the planetary recession, which has been started with US fiscal crisis, is more likely to be the greatest issue in the universe. It is because the US economical crisis is impacting non merely US itself but besides the states around the universe every bit good as Korea. Korean economic system received dig impact in assorted sectors: export, foreign investing, finance, unemployment. All the leader of the states put a batch of attempts to decide the economical jobs. A recession could be happened every bit long as minutess are made between individual and individual or states and states. However, it should non take long. The clip of a recession gives bad influence more than good. When this hard clip has gone off and roar comes, that would be the clip to do a readying for the clip the recession returns.
The universe is enduring in the clip of the recession. Person may state that he himself is non affected by current state of affairs. However, the recession gives indirect effects, which we can non experience right now but it, could come on us a small while subsequently merely like Domino because in a clip of recession, economic growing falls, stock market beads. These factors push investors to purchase exchequer bonds, which are sold by US, for their safety of money, and so involvement rates rise. Because of this, employers cut down new hiring. Finally, workers would lose their occupations ( Amadeo ) . This could go on to our households. Therefore, now is the clip to believe of relationship between the universe economic system and us.