“Can We Raise It to $550 Billion?”.

• Words from Howard Lutnick (U.S. Secretary of Commerce) to Lee Jae-myung (President).
• According to the Wall Street Journal, the U.S. government is insisting that South Korea’s $350 billion investment pledge to the U.S. should be increased to approach Japan’s $550 billion commitment.
• A White House official stated, “The U.S. is working to fine-tune the agreement with South Korea,” adding, “We are not demanding a ‘dramatic deviation’ from what has already been agreed upon.”
• The Wall Street Journal reported that Lutnick “emphasized that while South Korea is unlikely to significantly approach Japan’s $550 billion figure, it must agree to many of the conditions Japan has accepted.”
• A South Korean government official said, “Lutnick has never demanded $550 billion.” The South Korean government is currently persuading the U.S. by arguing that its economy is smaller than Japan’s and that excessive demands could lead to a financial crisis.
• Lutnick recently told CNBC in an interview: “The devil is in the details. South Korea must either accept this deal or pay tariffs. It’s black and white.”
• Related Link.
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Currency Swaps: Neither a Solution Nor Likely.

• Kim Yong-beom (Presidential Policy Director) said, “A currency swap is a necessary condition.” The sufficient condition? “It’s not cash—it’s loans and guarantees.”
• Currency swaps are ultimately discussed under the premise of making cash investments. The core issue is whether to invest at all, and if so, how much.
• Moreover, the U.S. has no reason to establish a swap with a non-reserve currency country.
• Kim Yong-beom emphasized, “There will be no compromising principles for the sake of deadlines.”
• Related Link.

“Minds Diverged.”.

• Kim Yong-beom spun a hopeful narrative. The July 31 briefing by Kim Yong-beom was revealed to be largely inconsistent with facts. “The talks went so well that no agreement document was needed,” he had claimed, but yesterday’s briefing admitted, “The content was significantly different from our understanding.”
• “We examined the U.S. definition of ‘cash flow’ closely and found it was pushing for something much closer to equity investment,” he stated.
• Kim Yong-beom had interpreted the $350 billion as a flexible upper limit. “No one knows the exact figure, and ambiguity is preferable,” he said—but now it appears that ambiguity is what’s tripping things up. His assumption that equity would be minimal and most funds would take the form of loans or guarantees may have been little more than wishful thinking.

South Korea’s $350 Billion Is an “Upfront Payment.”.

• Donald Trump (U.S. President) emphasized, “It’s an upfront payment.”
• “We’ve never been treated properly by other countries, but now we’re doing well,” he said, in good spirits after signing an executive order related to the TikTok agreement.

Negotiations Must Be Quiet.

• Chosun Ilbo’s advice: “The root of the problem is that the U.S. is making demands beyond our capabilities,” but “if we clash loudly externally, we cannot predict what impulsive actions Trump might take.”
• Statements like “accepting U.S. demands would lead to impeachment” or “could trigger a foreign exchange crisis” are naturally assumed to be reported to the White House.
• If mishandled, not only automobiles but also key exports like semiconductors and pharmaceuticals could face tariff bombs.
• Related Link.

What Matters Now.

Financial Services Commission Overhaul Collapses.

• Scrapped ahead of the Government Organization Act vote.
• Han Jeong-ae (Democratic Party Policy Committee Chair) said after a meeting with the Presidential Office, “We judged that government reorganization should not become a source of wasteful political strife or national division.”
• The original pledge by Lee Jae-myung (President) was to strip the Ministry of Economy and Finance of its budget function, create a new Planning and Budget Office, and revert to a Ministry of Finance and Economy system. The plan was to transfer the Financial Services Commission’s financial industry policies to the Ministry of Finance and Economy and separate it into a Financial Supervisory Commission.
• The Ministry of Economy and Finance is in a state of bewilderment. There had been high expectations that, in exchange for relinquishing budget authority, it would emerge as a control tower overseeing finance, taxation, treasury, and financial policy.
• Employees of the Financial Supervisory Service, who had faced being split into a Financial Consumer Protection Agency, are relieved. Lee Chan-jin (Financial Supervisory Service Governor), a close aide to Lee Jae-myung, may have exerted influence.
• While the Ministry of Economy and Finance and the Financial Services Commission are important, the core of the Government Organization Act remains prosecutorial reform. The People Power Party has been conducting a 24-hour filibuster since yesterday. The Democratic Party is likely to force a vote after the 24-hour period ends.
• Seok Byung-hoon (Ewha Womans University Professor) noted, “The government and ruling party have admitted to rushing the reorganization,” adding, “The reduced role of the Ministry of Finance and Economy raises concerns about weakening the economic control tower function.”
• The Korea JoongAng Daily assessed it as “confusion due to armchair theorizing.”
• A Democratic Party official said, “Whether to restart depends on the president,” but added, “There is no precedent of a plan that failed early in an administration succeeding later.”
• Chosun Ilbo evaluated, “Back to square one, as Lee Jae-myung wanted.” A Democratic Party official remarked, “Camp scholars and civic group members insisted on tackling the ‘financial mafia,’ but Lee Jae-myung apparently thought differently.”
• Related Link.
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Exchange Rate Surpasses 1,400 Won.

• The $350 billion U.S. investment is fueling uncertainty.
• As the U.S. lowers interest rates, inflation concerns have also grown.
• Hwang Geon-il (Monetary Policy Committee Member) noted, “Controlling volatility is more urgent than the exchange rate level itself.”
• Chosun Ilbo forecasted, “Regardless of the outcome, the exchange rate risks fluctuating wildly.” It could spike during currency conversion processes or collapse if negotiations fail, driven by uncertainty.
• Related Link.
• Related Link.

This Year’s Tax Revenue Shortfall: 12.5 Trillion Won.

• National tax revenue is projected to reach 370 trillion won.
• The decline in exchange rates has reduced VAT revenue, and the extension of fuel tax cuts is expected to decrease revenue by 900 billion won.

Woo Sang-ho and Chung Dong-young.

• Woo Sang-ho (National Security Director) stated, “The government does not recognize the two states,” while Chung Dong-young (Unification Minister) said, “The two Koreas already exist” and emphasized, “Our government’s task is to transform hostile two states into peaceful two states.”
• Observers note a clash between the “autonomy faction” and the “alliance faction.”
• Regarding the END agenda—a roadmap for engagement, normalization, and denuclearization—Woo drew a line by saying, “There is no priority among the three letters,” but Chung stressed, “Nothing can proceed without dialogue and engagement.”

Deep Dive.

Only 33 Years of Surplus in a Lifetime.

• Income exceeds consumption from age 28, but by 61, one enters a phase where income falls short.
• A structure where 33 years of earnings must cover youth and old age.
• Based on 2023 Statistics Korea National Transfer Accounts data.
• The age with the highest spending is 18, consuming 44.18 million won annually.
• The age with the highest earnings is 45, earning 44.33 million won.
• The total lifecycle deficit for South Koreans reaches 226 trillion won—1,232 trillion won earned, 1,459 trillion won spent.
• Related Link.

Another Take.

Bank of Korea Warns: “Expectations for Rising Home Prices Remain High.”.

• Speculation persists that a rate cut may still be difficult in October.
• Jang Jung-soo (Bank of Korea Director of Financial Stability) stated, “We are closely monitoring the spread of rising housing prices and their spillover to other regions,” adding, “If necessary, (the government) must introduce additional measures.”
• As of end-2023, 17% of firms are distressed, unable to cover even loan interest with earnings.
• The proportion of vulnerable self-employed borrowers also approaches 80%.
• Related Link.

Pro-Moon Kim Young-jin Warns Jeong Cheong-rae on Sudden Acceleration.

• Timing is subtle. Kim Young-jin (Democratic Party lawmaker), commenting on the Cho Hee-dae (Chief Justice nominee) hearing, said, “I think Cho Mi-ae (Judiciary Committee chair) may have accelerated too abruptly,” adding, “It’s inappropriate to hold a hearing based on unverified facts.”
• Regarding the Cho-Jeong conflict, he remarked, “This is the third major clash—first Cho Mi-ae vs. Yoon Suk-yeol, second Cho Mi-ae vs. Han Dong-hoon, now third”—and noted, “I don’t recall the outcomes of these ‘wars’ being particularly appropriate or positive.”
• Related Link.

Estonia’s Wind Paradise and Its Choice.

• Half the size of South Korea, with a population of 1.34 million. Its electricity consumption is 1/60th of Korea’s. It designed a renewable energy society centered on wind power, with solar as a supplementary source.
• In 2023, it created a Ministry of Climate and Energy and unveiled an ambitious plan to meet 100% of its electricity needs with renewables by 2030.
• Yet it ultimately failed to resolve baseload power issues and decided to partially adopt SMRs (small modular reactors). Yoiko Allender (former Estonian Climate and Energy Minister) said, “Both renewables and nuclear are important energy sources, and their proportions will be pragmatically adjusted to fit reality.”
• Related Link.

The Fix.

Lessons from Japan’s Health Insurance System.

• Last year’s medical subsidies for the elderly amounted to 4.8591 trillion yen.
• The system is barely balancing its finances by raising premiums.
• Japan’s health insurance premiums stand at 9.3% of income—South Korea’s are 7.2%.
• Total medical spending reached 48 trillion yen, with those aged 75+ accounting for 41%.
• Related Link.

Unemployment Benefits Exceed Minimum Wage.

• This year marks the 30th anniversary of unemployment benefits.
• This year’s minimum wage is around 2.1 million won per month for a 40-hour workweek. After taxes, it becomes 1.87 million won.
• The unemployment benefit floor is 80% of the minimum wage, amounting to 1.93 million won for a 30-day month.
• In practice, some workers repeat a pattern of working for seven months and resting for four—stepping-stone employment.
• The Korea Enterprises Federation argued, “To build a sustainable employment insurance system, it’s necessary to reform the excessively high unemployment benefit floor and rationally adjust incentives, such as reducing benefits for repeat claimants.”
• Related Link.

A Grandmother Reported 60 Times.

• She has been seen walking in the roadway, standing on the median, or being driven home by police responding to 112 calls—too many times to count.
• This grandmother is unmarried, with only a nephew living separately as family. The nephew has no intention of supporting her but opposes her admission to a care facility.
• The U.S. grants immunity to police and medical personnel who proceed with emergency hospitalization.
• In Japan, local governments and public health centers can take administrative responsibility for hospitalization.
• In South Korea, administrative hospitalization is impossible if someone objects. Kang Joo-an (JoongAng Ilbo columnist) pointed out, “A system where authorities take responsibility—like other countries—for protecting dementia patients living alone is urgently needed.”
• Related Link.

Gwangju Gwangsan’s 10 AM Work Experiment.

• Parents with elementary school children can start work one hour later or finish one hour earlier for two months per child, receiving a 400,000 won monthly subsidy.
• Started with 100 participants in 2022, now expanded to 500. The budget is 400 million won.
• Differs from the government’s childcare leave reduction program, which offered up to 200,000 won and was rarely used due to workplace pressure.
• The central government has allocated 3.1 billion won for next year. If funding increases, Gwangju plans to extend the program duration.

ICYMI.

China Aims to Cut Greenhouse Gases 7–10% by 2035.

• Xi Jinping (Chinese President) declared this in a UN speech. The plan is to increase solar power generation to 3,600 GW within a decade—six times the current scale. The goal is to raise the share of non-fossil fuels in total energy to 30%.
• It contrasts sharply with Trump’s statement the day before: “Climate change response is the world’s biggest hoax.”

Naver-Dunamu Merger Aims for Stablecoin Platform.

• Naver Financial (Naver Pay), in which Naver is the largest shareholder, and Dunamu have agreed to pursue a comprehensive stock exchange. Under a vertical integration structure connecting Naver–Naver Financial–Dunamu, it will become a 100% subsidiary.
• Their respective market caps are 10.7 trillion won and 1.7 trillion won. Naver’s stock price rose 11.4% on the merger news.
• Naver has faced doubts about its growth potential: search is stagnant, and commerce is highly competitive.
• Naver is likely to accelerate stablecoin business with Dunamu. Dunamu has already unveiled Giwa Chain and Giwa Wallet and completed preparations for stablecoin operations.
• Stablecoins should be understood as infrastructure rather than investment assets. In South Korea, projections suggest a 33 trillion won market by 2030, with won-pegged coins accounting for 30%.
• Mirae Asset Securities forecasted, “Annual revenue of 300 billion won could be achievable by 2030.”

Worth Reading.

A Cold Economy and a Red-Hot Stock Market.

• The domestic economy remains sluggish, and corporate fundamentals have not significantly improved, yet the stock market is on fire.
• Kim Hak-gyun (Center Head of ShinYoung Securities Research) assessed, “Asset markets and the real economy seem to have become completely separate worlds.”
• While the market isn’t rising because the economy is strong, higher stock prices could positively impact the economy. The number of Korean stock investors grew from 6.18 million in 2019 to 14.23 million last year.
• Kim noted, “There is no decisive cure for reversing the domestic slump,” but added, “If dividends for the 14.23 million shareholders increase, it could eventually have a far greater positive effect than consumption coupons.”
• Related Link.

‘Nanga Fever’ Sweeps the Democratic Party.

• Expectations are already overflowing: “Who’s next to ‘nanga’?”
• Park Young-hwan (Kyeongyang Shinmun Political and International Editor) pointed out, “While hardline Democratic Party members may feel satisfied seeing the tough tactics of Rep. Chung Kyung-rae (Party Leader) and Rep. Choo Mi-ae (Judiciary Committee Chair), many citizens feel uneasy.”
• The advice is to “focus on details, not slogans, for successful reform.”
• It’s about finding “the intersection between the Democratic Party’s 1.1 million rights-holding members and the broadest possible majority of the public.”
• Related Link.