Government and ruling party distribute money in the market: DONG-A ILBO
South Korean presidential office Cheong Wa Dae and the ruling party continued discussions on setting up a disaster relief fund on Friday. While the ruling party is proposing to give a fund to every South Korean citizen, Finance Minister Hong Nam-ki is in favor of providing a fund to 70 percent of the low-income bracket. However, they are expected to come to an 80-90 percent agreement in the end. Additionally, the South Korean government and ruling party are aiming to boost domestic demand by implementing a consumer incentive program to reimburse 10% of an increased amount of credit and debit card payments.
As advanced economies, including the United States, brace for a rapid recovery, inflation fears are mounting. So, it may be natural for the South Korean central bank to try to tighten the purse strings to control market liquidity before it is too late. Low interest rates pushed household debt up to the country’s GDP level and allowed house prices in the Seoul metropolitan area to soar from 100 million won to 200 million won in a week. If left untreated for a period of time, global austerity, once it occurs, can reduce asset values, bankrupt people and disrupt the financial system.
Even as the Bank of Korea is sounding the alarm bells, the government and ruling party are showing no signs of curbing spending. No matter what is set up as the standard for a disaster relief fund, more than 10 trillion won will be spent on those who do not feel the need for government support. If a sum of money is not spent on reducing the national debt which grows by 100,000 trillion won each year but must be supplied to the market, it risks exacerbating inflation and the asset market bubble.
A government support initiative for mom-and-pop stores and self-employed workers is supposed to ensure a quick and generous subsidy as they have been pushed by the COVID-19 pandemic to the brink of closure. However, at a time when excess liquidity requires reduction, it is not reasonable to give money to those who are financially stable so that they can be encouraged to spend money. It’s no different than pressing both the brakes and the accelerator.
Criticized for the stark difference between monetary policy and fiscal policy in the National Assembly on Thursday, Premier Hong replied, “The government will be careful to prevent things from seriously derailing. However, the announced supplementary fiscal plan is already not in line with current macroeconomic policy. Such a high level of inconsistency in policy guidance will only exacerbate the problems of household debt and the housing market, leaving national debt to accumulate to an unnecessary level.