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I have really got a good global economics lesson this week by learning about how the dollar is dropping in value against the Korean won. Thanks everyone that commented on this issue this week. Through your comments and some recent news articles I have read, I got a good understanding of what is going on with the dollar. The sliding dollar, depending on who you talk to, may not be a bad thing. First, here is the opinion on the dollar’s slide from Thomas Friedman of the New York Times.

… global markets are realizing that we have two major vulnerabilities that this the latest rise of the won is a reaction to its artificial repression by the government. Other currencies underwent appreciation against the greenback in the past few years, but Seoul officials kept the value of the local currency at a low level to keep up export momentum. The government should have allowed its gradual appreciation instead of containing the upward pressure at huge cost. Now the dam has almost burst and the damage for businesses is as great as it is sudden.administration doesn’t want to address: We are importing too much oil, so the dollar’s strength is being sapped as oil prices continue to rise. And we are importing too much capital, because we are saving too little and spending too much, as both a society and a government.

When a country lives on borrowed time, borrowed money and borrowed energy, it is just begging the markets to discipline it in their own way at their own time. As I said, usually the markets do it in an orderly way – except when they don’t.

Friedman is actually a pretty good columnist if you are not familiar with him. Unlike other NY Times columnists he is usually pretty fair and his points about using to much oil and the government spending to much are valid. Here is the Korea Times take on this issue.

… the latest rise of the won is a reaction to its artificial repression by the government. Other currencies underwent appreciation against the greenback in the past few years, but Seoul officials kept the value of the local currency at a low level to keep up export momentum. The government should have allowed its gradual appreciation instead of containing the upward pressure at huge cost. Now the dam has almost burst and the damage for businesses is as great as it is sudden.

Apparently those with the most to lose are going to be the Korean exporters. They are going to have to adjust their business strategies to not depend on exports to maintain economic growth in the country. The falling dollar is causing their exported goods to cost more which means more Americans will buy either American or other country’s cheaper goods.

… the answers lie in the industrial sector. Large businesses appear somewhat ready for the strong won, but small- and medium-sized firms remain helpless against declining export profitability. So the policy supports should be directed to help smaller firms armed with advanced hedging techniques against currency risks. Equal efforts should be made to help enhance their competitiveness through cost cutting, technology development and strategic restructuring.

Barring heavy government intervention, the exchange rate will likely enter the three-digit range in no time. But we all know the parity rate was in the 800-won range before the 1997-98 currency crisis. The nation is just going back to where it once was, although the process of rebuilding will be harder than the initial construction.

It appears that the Korea Times is in agreement with Friedman’s assessment that the dollars slide will be okay only if it doesn’t happen to quickly. Let’s keep our fingers crossed. In the mean time I guess I am going to have to get used to an exchange rate in the 800 won range. I guess I will be buying less mink blankets from Itaewon to send home as gifts in the future.

Is the ROK Army moving closer to an all volunteer army? After reading this in the Joong Ang Ilbo I think so.

Discipline-related fatalities in the military, such as suicide, are occurring one after another. Last year, 66 soldiers took their own lives while serving in the military; an average of 5.5 deaths per month. This year, some nine servicemen had committed suicide as of mid-February. The percentage of suicides among total casualties in the military has risen. Put yourself in the shoes of a soldier’s parent. If your son returns as a corpse because he was unable to withstand the abuse in the armed forces, who could trust the armed forces to take care of their son? Analysis of the deaths points to complex causes.

The most significant problem is the abuse that still exists within the ranks. In a recent case in which an enlisted soldier hanged himself, the cause was revealed to be physical abuse from a higher-ranking soldier. Many preventive measures were adapted after the incident in which trainees were forced to eat human excrement, but they have failed to eliminate inhumane acts in the barracks.

Another factor is the different values that soldiers possess these days. According to some, many soldiers cannot even endure verbal abuse, something that wasn’t a problem just a short time ago. It has gotten to the point that many enlisted soldiers in a forward-based unit were sent to boot camp for using vulgar language to lower-ranking servicemen.

Fierce training and discipline within the ranks are essential to the military. The problem is that these characteristics might collide with the values of today’s recruits, who were pampered and allowed to behave according to their wills while growing up. A good example of this is the soldier who fled his unit during a cold-weather training exercise and was found crouching in a civilian house, claiming the weather was too cold to withstand.
Because of the severity of the problems, temporary solutions are no longer appropriate. A drastic upheaval of the military culture is needed. An atmosphere in which men are properly trained while their basic rights are respected needs to be widely adapted.

The military must provide motivation for soldiers to voluntarily take part in its lifestyle. We must make them realize that the time spent in the armed forces is not wasted. Barracks must be brought up to date so that they’re similar to the environments soldiers were used to in their civilian lives. Don’t think of such investments as a waste of money.

This sounds like Korea needs an all volunteer army to me. Korea is in a predicament because it needs to maintain an extremely large army because of the threat from the Norks and uses the draft to fill it. However, with the changing attitude of the new recruits I have noticed myself over the years here that the newer generation is more bitter about doing their military service. Teaching draftees to appreciate military service will do nothing to correct the problem.

At some point Korea will have to go to an all volunteer force. To do this the soldiers will need to get payed more than the $40 bucks a month they are making now. Discipline will be easier to keep in an all volunteer force because these soldiers know what they are getting into and not bitter like draftees. The article recommends upgrading barracks to meet the standards recruits are used to at home. This is unlikely because US Army barracks do not meet this standard. A new private will come to Korea and if the private is lucky he/she will be in a two man room. Many are packed in 3 or even 4 to a room. I don’t see how the ROK Army could do any better. What Korea needs to figure out is if an all voluteer army is feasible. If a large enough force cannot be maintained with an all volunteer army, the country will need to figure out some solution to the North Korean problem in the short term because they may have a hard time keeping a large enough military to counter North Korean aggression in the long term if the current trend stays the same.

Isn’t America a country with a strong economy and a strong currency? If this is so what the heck is going on with the dollar? The Dow is sitting at 10,785 up 30 points and yet the dollar continues to drop. It dropped today to 986.24 won to the dollar because the Bank of Korea has decided to start selling off its reserves of US dollars, according to the NY Times, due to the sliding of the dollar and shift the reserves to other currencies.

Japan, which has the world’s largest stockpile of foreign currency at $841 billion, has indicated it will continue to accumulate American assets, while China, in second with about $600 billion, has not been buying much more. South Korea’s holdings rank fourth, at about $200 billion, behind Taiwan.

The Bank of Korea indicated in a report to the South Korean parliament that it might keep more of its reserve assets in Australian and Canadian dollars instead of United States dollars. The plan was reported on Monday but had little effect on currency traders, in part because the United States markets were closed. On Tuesday, the news led to a quick strengthening of Asian currencies against the dollar and then contributed to the rise in the euro.

It looks like more trouble may be ahead for the dollar:

“The markets are so skittish right now that seemingly marginal news can have a big impact on the dollar,” said Julian Callow, chief European economist with Barclays in London.

Contributing to that skittishness are questions about the intentions of central banks regarding the dollar. Russia’s central bank has said it is rethinking what proportion of dollars and euros it holds. Some Middle Eastern countries have also suggested they might step up their purchases of euros, at the expense of dollars.

The whole currency thing is so screwed up now that I am shopping more and more on post for things then buying goods off post. I remember four years ago when I was getting over 1300 won to the dollar. Hopefully this slide will turn around. I didn’t study economics in college but but my personal portfolio has had a good steady growth right along with the New York Stock Exchange. I still don’t understand how the dollar drops so sharply like it is now when the economy has been picking up steam? Can any of you economists out there explain this?

I have had KATUSA’s ask me before if I have heard anything about them wearing the Taeguki on their uniforms since the American soldiers wear the Stars and Stripes on theirs. Via the Budaechigae it is now official that KATUSA’s can wear the Taeguki on their uniforms.

Hyundai in partnership with Chevron-Texaco has opened a hydrogen fuel pumping station in Chino, CA.

Hyundai Motor Group said yesterday that it set up its first hydrogen fueling station at its technical center in Chino, California.
The station, unveiled in a partnership with UTC Fuel Cells and ChevronTexaco, produces 15 kilograms of hydrogen per day from natural gas, and has the capacity to charge 30 cars a day, taking less than two minutes to fill each vehicle, Hyundai said in a statement.

Hyundai’s hydrogen station is the first to be completed under a five-year Hydrogen Fleet and Infrastructure Demonstration Validation Program sponsored by the U.S. Department of Energy.

This is really great to see Hyundai getting involved in the development of hydrogen fuel cell technology. However, is this technology pratical? This is what Hyundai is trying to find out.

Over the next five years, the automotive group plans to operate 16 Hyundai Tucson and 16 Kia Sportage hydrogen-electric vehicles in major U.S. cities and build five more hydrogen stations in California and Michigan with the two partners.

In 2003, Hyundai and UTC Fuel Cells agreed to collaborate on Hyundai’s second-generation fuel cell vehicles based on the new Tucson and Sportage sport utility vehicle platforms.

I really hope this becomes a pratical technology because I strongly believe the US cannot continue to be dependent on Middle Eastern oil for our huge energy needs. As long as the US is buying large quantities of oil from them, the authoritative regimes in the Middle East will never reform because they don’t need democratization, better education, and more opportunities for their women to create economic development. Oil is easy money for them. Now what will they do if we take away the oil revenues? They have to reform to stay competitive in today’s global economy or get left behind. In the long run someone buying one hydrogen fuel cell car will be better than somebody killing one jihadist.

Plus hydrogen technology will prevent a future confrontation between China and the US for oil due to China’s ever increasing energy needs as they continue their rapid development.

This is good business for Hyundai also because they really appear to be on the cutting edge of developing a technology that will really change the way we live our lives. The last decade the internet was the big invention that changed every day life. I really hope this hydrogen technology will be this decades’ big achievement.

Something I’m really wondering about though is why is Hyundai testing this technology in America and not Korea? The biggest problem with the hydrogen fuel cell technology is finding fueling stations to fill up at. With Korea’s population density creating a few service stations in Seoul would allow a large market of people to buy this car without fears of not being able to fill up. Why doesn’t Hyundai make buses using this technology to replace Korea’s current buses? Implementing this technology in Korea would really clean up the air here. I guess we got to start somewhere. So how soon will we see mass production of this technology? As soon as 2010:

Korea’s largest automaker provided the Ministry of Environment with 50 Click hybrid hatchbacks last October for testing and plans to set up a production line with annual capacity for 300,000 hybrid cars by 2010.

I can’t wait.

As many of you know I am against the ROK Army deployment to Iraq as long as they are there as a window dressing army doing the governments bidding in hopes of winning future contracts from the new Iraqi government. Click here for more of my thoughts on this matter. It is not so much that the ROK Army’s Zaytun Unit is in Iraq for it’s governments own national interests, which is understandable, but because the ROK Army is capable of doing some great reconstruction work if it is allowed to. Primarily the only construction work the Zaytun Unit has done is to build its own operating base complete with an internet cafe to play Starcraft from. That is until now. Via the Budaechigae the Zaytun Unit has announced the great reconstruction project we have all been waiting for! Will it be a bridging project or the announcement of building a new modern highway system, or even an updated electrical grid? Maybe even better yet a new dam! No, to all these great ideas because the collective wisdom of the Korean government has decided the greatest reconstruction project that will stand the test of time, that all Kurds will remember Korea by centuries from now will not be any great dam or highway project but modern plumbing!

Korea’s Zaytun Troops stationed in Irbil, Iraq plan to introduce a new bathroom culture to the war-torn country as part of their peaceful reconstruction project.
The troops plan to install ceramic bidets in all public offices and schools in the Kurdish region starting from March.

In the Middle East, toilet paper is virtually unheard of, and people use their left hand to clean themselves after they have done their business, though Asian-style “water guns” are gaining popularity. The 310 bathrooms within the garrison are all equipped with bidets.

“Because Iraqis are already using water after their toilet, we predict they will easily adapt to bidets,” an officer with the Zaytun troops said. “We plan to put them in all new buildings.”

Korea’s bathroom accessory maker Woongjin Coway is donating 1,000 bidets for the project, each valued at about W700,000. They will include some prototypes besides brand-new products. “If the response is positive, we plan to increase the number of products,” a company spokesman said.

Yes that is right folks the Zaytun unit is going to install toilets and teach people not wipe their ass with their left hands! So years from now when a thriving democratic Iraq holds a commemoration ceremony to thank the coalition countries for helping free Iraq, they will thank countries like America, Britain, Australia, Poland, etc. for shedding blood, sweat, and tears to free the Iraqi people and when they get to recognizing Korea’s contributions to freeing and rebuilding the country, they will thank the Koreans for introducing the wonders of toilet paper to them. The ROK Army deserves better than this.

It appears that the rapidly increasing opinion on the most recent North Korean nuclear crisis is that the real problem is not North Korea but China. First we have this article from the New York Times.

“If we cut off aid and the Koreas are unified on South Korean terms, that would be a big disaster for China,” one analyst said. “The U.S. would insist on basing its troops in the northern part of the peninsula, and China would have to consider that all of its efforts going back to the Korean War have been a waste.”

A fresh example of the divisions between the United States and China was provided this week with confirmation that Tokyo is moving closer to Washington’s policy position that the status quo on Taiwan must be maintained. Chinese analysts often point out that having a friendly country tying up American troops on its northern border frees Beijing to focus its forces on other contingencies, notably the Taiwan question.

I think any Chinese worries about the US basing troops in North Korea after reunification are overstated. Currently the US appears to have little interest in basing troops in South Korea much less North Korea. After reunification an American presence in North Korea would give the southern government little credibility with the northerners. The northerners since the day they are born are taught the South Koreans are nothing but slaves to the evil Americans. American forces stationed in North Korea will only reinforce this perception. To secure North Korea and to build legitimacy for the southern government the ROK Army will have to be the force that secures the north not the US Army.

Keeping North Korea afloat to tie up US troops in Korea was once a valid strategy. With the transformation of USFK into a deployable force which was evident by last summers deployment of 2nd brigade to Iraq this strategy has little weight any more. If hostilities were to break out between China and Taiwan the US could deploy troops from the Korean peninsula with little impact on the security situation on the Korean peninsula due to the strength and modernization of the ROK Army to defend itself from North Korean aggression.

Now the real reason I think China is keeping North Korea afloat is first of all the refugee issue. If North Korea were to collapse China faces the possibility of being flooded by refugees which it does not want to deal with especially with the Olympics soon coming to Beijing. China is desperate to keep the status quo with North Korea until at least the Olympics pass. Beijing is desperate to make sure nothing spoils their Olympic moment. Beijing wants to use the Olympics to show case China as the world’s newest superpower. Waves of homeless refugees and refugee camps or the aftermath of a war on the Korean peninsula will take some of that luster from China’s Olympic spotlight. So the status quo is good for China until at least 2008.

Secondly one has to ask, what does China get out of reunification of the Korean peninsula? Really nothing accept a pat on the back from the international community. If I was a Chinese policy maker, I would hold on to the North Korean issue as a bargaining chip for the reunification of Taiwan with mainland China. If you look at the Taiwan issue it is the evil twin of the North Korean issue. With North Korea you have a democracy wanting to reunite with its communist little brother. With China you have a communist government trying to reunite with its democratic little brother. China will continue to pay lip service to the North Korean issue as long as Washington continues to give lip service to the Tawainese issue.

So it appears that the whole issue will stay at a deadlock for sometime unless there is regime change in China to. Here is this article provided via fellow Milblogger the Budaechigae.

Communist China’s opposition does not make North Korea’s liberation any less necessary or vital. In fact, Communist China’s continuing willingness to support Stalinist North Korea makes liberation ever more imperative. This leads to the heart of the issue: how does one “solve” the North Korean problem when Communist China is determined to prevent the solution from being implemented? If the Chinese Communist regime is determined to remain an obstacle to freedom in North Korea, then there is only one alternative: that regime must be removed as well. The policy for the United States is clear: to liberate northern Korea, one must work to liberate China as well.

I don’t think the US needs to implement regime change on China because it will eventually happen on its own given time. Once the Chinese become used to a modern and prosperous lifestyle and all the things that come with it, the people will eventually call for political reform as well, which means democracy. In Korea, Park Chung-hee was a dictator but people could live with the disadvantages of having a dicator ruling them at that time because he brought modernization and prosperity to the country. In the 1980’s the Korean people took their prosperity for granted and began to want more. They wanted political liberalization as well which eventually led to democracy in the 1990’s. The same thing will eventually unfold in China given time. But that is the current problem we have with North Korea. How much time do we really have?

The Norks are accusing the US & Japan of plotting an invasion of North Korea.

North Korea has accused Japan of aspiring to rule a “Greater East Asia Co-prosperity Sphere” beginning with an invasion of Korea with the assistance of the United States.

North Korea’s use of the term “Greater East Asia Co-prosperity Sphere” harkens back to Japan’s brutal domination of East Asia before and during World War II. The term described how Tokyo, under the guise of ridding the region of Western influence, set up puppet governments to establish Japanese hegemony and plunder foreign resources.

Most interesting about the article is the publicly aknowledged close relationship the US and Japan currently have and the security agreement publicly made concerning Taiwan.

In the joint statement, the ministers “reaffirmed the continuing strength and vitality of U.S.-Japan security arrangements, and expressed confidence in their capacity to deter and address challenges to regional peace and stability.”

“We value that in the United States and benefit from it and certainly understand that it remains a key pillar of peace and stability in the Asian Pacific region and a benefit to the world.”

(….)

“Chinese government and people resolutely opposes the United States and Japan in issuing any bilateral document concerning China’s Taiwan, which meddles the internal affairs of China, and hurts China’s sovereignty,” the Foreign Ministry said.

This appears to me to be an effort by the US to put pressure on China to make concessions on the North Korean nuclear issue. Relations between Japan and China must really be at rock bottom for the Japanese to come out and make such a statement publicly knowing what the reaction in China will be because I don’t know what the Japanese get out of making such a public statement. The only thing I can think of is that Japan will get stronger support from the US to receive a UN security council seat but they will have to avoid a Chinese veto which giving support to Taiwan publicly like they have will certainly mean. Once again it will be interesting to see how this all plays out.

I do have to say the North Koreans are the masters at getting themselves recognized again just when you thought everyone forgot about them. According to this Chosun report North Korea is now considered America’s number one enemy by the US public.

WASHINGTON – Americans who showed little concern for North Korea just four years ago now count the Stalinist country as a major enemy of the United States, according to a Gallup poll of 1,008 adult Americans on Feb. 7-10.
When asked which nation they currently considered the most dangerous enemy of the U.S., 22 percent of the respondents selected Iraq and North Korea, giving the two nations a tie for first place. They were followed by Iran with 14 percent and China with 10 percent.

In a 2001 survey, 38 percent of respondents selected Iraq but only 2 percent North Korea.

I tend to agree with this assessment that Koreans are unconcerned about the North Korean nuclear threat.

A majority of South Koreans are unconcerned by North Korea’s Feb. 10 announcement that it has nuclear weapons.
In a public opinion poll conducted Tuesday by TNS Korea at the request of the Korea Society Opinion Institute (KSOI) on 700 adult men and women nationwide, 58.9 percent of respondents said they felt no insecurity following North Korea’s recent declaration.

Asked about a solution to the nuclear issue, 74.7 percent responded that Seoul needed to send a special envoy to Pyongyang or hold an intra-Korean summit and persuade the North to give up its nuclear weapons. Another 22.8 percent said pressure like the freezing intra-Korean economic cooperation or sanctions was needed.

Just about every Korean I have talked to didn’t really have any strong feelings about the issue. I can’t really blame them because this thing seems to happen all the time. South Koreans have grown used to threats of nuclear obliteration just like the changing of seasons here. Winter time really sucks here but not enough to stress out about.