[Prologue] There is no set future.

LESSON 1.
Why is a severe recession inevitable?

· Good inflation, bad inflation, or weird inflation?
· How to curb bad inflation?
· Strange Recession? A Necessary Recession!

LESSON 2.
What's Going to Break?: The Growing Risk of a Financial Crisis

· Killer of the business cycle
· Dramatic monetary phenomenon
· Choice for victory of inflation fighters

LESSON 3.
The Destructive Mechanism of the Super Strong Dollar: Japan in a Dead End

· “Our currency, your problem”
· Scenarios of huge risk
· The American economy's revival

LESSON 4.
Post-Crisis Opportunity: Conditions for a Rebound

· When will the opportunity for a rebound come?
Three conditions for ending interest rate hikes
· The sad reality of waiting for an economic downturn

LESSON 5.
Post-Crisis Opportunity: A Massive Fall in Interest Rates and the Dollar

Signs of a rate cut: A signal of a rebound
· 'Real' Interest Rates? Asking Inflation!
· Why the Dollar's Smile is Fearful

LESSON 6.
Post-Crisis Risk: Chronic Stagnation

· Deja vu of chronic recession?
· Very bad scenario
The Limits of Ultra-Low Interest Rate Policies_Japan / The True Face of Growth_China

LESSON 7.
Post-Crisis Risk: Chronic Inflation

· Repeated mistakes by central banks
· Ominous Signs: Memories of Stagflation
· A central bank that exists to reduce spreads?!

[Epilogue] The Temptation of a False Dawn

In-Depth LESSON: Behind the Scenes of the Global Economic Cycle
· Why is a 'significant recession' inevitable?
· Minority opinion
· Excessive trust in the Fed
· What if the Fed is right this time?
· Rebuttal to Jerome Powell

“Why is a severe recession inevitable?”

The key word for answering the question posed in Lesson 1 of the first chapter of this book, "Why is a severe recession inevitable?" is "inflation."
“The most important issue in the global economy right now is, first, second, and third, ‘inflation.’
“Inflation is a very harmful economic phenomenon because, although it usually accompanies economic boom and abundant jobs, it ultimately creates a lot of unemployment.” _ Page 290

One of the reasons why this book focuses so much on the American economy is inflation (page 7).
This is because the epicenter of this inflation that has swept the world is the United States.
In fact, inflation in the United States is at its highest in 40 years.
In terms of severity, this is the first inflation we have experienced since the 1970s (page 15).


The problem is that a recession is inevitable in order to control inflation (page 42).
A recession is a persistent and widespread decline in production, employment, consumption, and investment (p. 44).
But something is a bit strange.
It's common sense for governments to reduce unemployment, improve productivity, and boost consumption and investment, but it's unusual to find ourselves having to tolerate a certain degree of recession.
But it is an undeniable 'fact'.
The most representative example is the economic reality of the United States.
The current U.S. economy is overheated, leading to serious price instability.
The problem is that America's inflation crisis isn't confined to the United States.
The card that the Federal Reserve, the central bank of the United States, has pulled out to cool down the overheated economy is 'interest rate hike', but there is no country in the world that is free from the interest rate policy of the Federal Reserve, which is the key currency country and the world's largest economy.


“What will break?”

In the second chapter, Lesson 2, the immediate answer to the question, "What will break?" is the "risk of a escalating financial crisis."
It is a natural connection between 'US inflation → Fed interest rate hike → recession (economic downturn) → global financial crisis.'
This further demonstrates that America's problems are ultimately global problems, and overlaps precisely with the problematic remarks made by US Treasury Secretary John Connally in 1971.
“The dollar is our currency, but you have the problem.”_Page 100

Here, 'you' refers to countries outside the United States, including Korea.
The weapon that the Federal Reserve, calling itself an inflation fighter, has pulled out to curb inflation is an interest rate hike (page 60), but the interest rate hike by the United States, a reserve currency country that prints dollars, is also a warning to the outside world and the entire world.


If you look at the recessions in the US over the past 50 years, the Fed has raised interest rates at the beginning of each recession.
The graph on page 59 of this book confirms that the Fed's interest rate hikes and recession periods are closely linked.
Also, looking at the graph on page 62, when the Federal Reserve's policy interest rate curve sloped upward, the Nasdaq index fell at a steep rate.
In other words, we can see that the chain is 'interest rate hike → stock price plunge → financial market collapse → economic recession.'
This is no different from the recent pattern of interest rate hikes leading to a recession following a decline in the real estate and stock markets.


The Destructive Mechanism of the Super Strong Dollar

America's severe inflation doesn't end with interest rate hikes, financial market collapse, or recession.
The imbalance in currency values ​​between countries is even becoming a problem of exchange rates.
“The U.S. government and central bank stimulated the economy too much, which led to inflation.
In the end, the Fed belatedly began raising interest rates.
The later it was, the more aggressively and hastily it raised interest rates.
If U.S. interest rates rise sharply while Korean interest rates rise relatively less, the interest rate gap between the two countries will widen.
Because the US is offering much higher interest rates, Korean money is flowing out to the US.
Because we sell won and buy dollars, the dollar-won exchange rate goes up.
As the exchange rate rises, our country's import prices rise.
“We don’t overspend that much, but the exchange rate is causing inflation in our country.” _Page 108

Ultimately, the overheated economy in the United States ended up driving up prices in Korea.
The problems of inflation and the strong dollar in the United States are having a significant impact on the monetary policies of countries such as Japan, the United Kingdom, and Germany. This book particularly focuses on Japan's long-standing ultra-low interest rate policy.
“Despite the fact that the rest of the world, especially the United States, is raising interest rates significantly, Japan is insisting on extremely low interest rates.
So the interest rate gap between the US and Japan has widened to an extreme.
So what happens then? Japan will have to give up its stable exchange rate.
Page 112

The direct cause of the serious yen depreciation is Japan's adherence to an extreme low interest rate policy, even at the cost of giving up a stable exchange rate.
However, as the interest rate gap between the U.S. and Japan widens, the stress on the dollar-yen exchange rate, and thus the Japanese foreign exchange market, is also significant.
Japan's inflation, which had been hovering around 1% for a long time, soared to 3.8% in the fourth quarter of 2022 (page 115), as import prices rose significantly as the burden of the weak yen grew.
We must not overlook the fact that if Japan becomes unable to withstand the pressure of a strong dollar, a serious chain reaction could occur on global government bond interest rates (page 119).
If a global financial crisis breaks out in the near future, Japan's monetary policy could be the trigger.


Post-Crisis Opportunity: US Interest Rate Cuts, Dollar Decline

If the Fed's interest rate hikes to curb inflation and a severe recession are inevitable, when will we finally see the bottom of the recession? Amidst the prevailing global outlook for a "perma-crisis," the fundamental principle of the economic cycle is that we must also keep open the possibility of a rebound.
This is because we have experienced throughout the history of the capital market that, just as deep valleys lead to high mountains, severe recessions have been transformed into strong rebounds (page 130).
“When the US financial environment begins to ease, that is precisely when the global economic cycle, including Korea, will begin to prepare for a rebound.
〈Omitted〉 However, the financial environment is mainly determined by interest rates and the dollar exchange rate.
“If U.S. interest rates are lowered again and the dollar begins to fall, the global economy will soon come back to life.”_Pages 168/169

Once we move past the severe recession and inflation returns to normal, the Fed will naturally cut interest rates.
The problem is the dollar's relentless strength.
Looking back, the Fed's interest rate cuts did not immediately lead to a decline in the value of the dollar (p. 185).


So when will the dollar begin to weaken? The 2008 financial crisis provides a good example.
It was only after some time had passed since the Federal Reserve had completely cut interest rates that the value of the dollar began to fall.
The graph on page 197 clearly shows that the decline in the value of the dollar coincides with the end of a recession.


Post-Crisis Risks: The Debt Trap and Stagflation

But does opportunity inevitably follow after a crisis? The final two chapters of this book (Lesson 6.
Lesson 7) describes some very uncomfortable dilemmas.
The principle of the economic cycle, in which curves of decline and rebound should alternate, could be greatly shaken.
For example, despite the US Federal Reserve's strong interest rate cuts, inflation may not be easily curbed.
This causes the recession to continue for a long time and become ‘chronic’.
The cause of this dilemma is ‘national debt.’


“During the financial crisis, when fiscal deficits were soaring, the government played a role in supporting economic growth.
But it is impossible to continue to run such a large fiscal deficit.
The subsequent rapid reduction in the fiscal deficit had a long-term negative impact on U.S. economic growth.
〈Omitted〉 And then, during the pandemic, there was another huge boost.
It was a welcome relief for inflation.
The U.S. government's debt has now grown so large that it seems impossible to repay.” _Pages 216/217

As of the end of 2022, the U.S. national debt reached 100% of GDP (p. 220).
This means that the government debt could be repaid if the entire country did not spend a single penny of its earnings throughout the year (p. 221).
This is the first time that national debt has reached 100% of GDP since the end of World War II in 1945, when the burden of war costs was enormous.
The problem starts now.
The Congressional Budget Office estimates that the national debt will steadily rise over the next 30 years, reaching 200% of GDP by 2052.
The interest bomb caused by the interest rate hike on the principal amount of debt is adding to the burden (page 223).


The debt dilemma is not limited to the United States.
Japan, which has the highest government debt in the world, already has a national debt of 260% of GDP (p. 228).
This is why there are growing concerns about how long the Japanese government can maintain its ultra-low interest rate policy and low inflation pressure, given the severe gap between the dollar and the yen and the burden of a weak yen (p. 237).
The EU's situation is also not easy, as it must form an economic community with a country with a huge national debt like Italy.
The memory of March 12, 2020, when the pandemic was at its peak, reminds us of the terrifying nature of the national debt trap.
At a time when Italy's national debt burden was so severe, ECB President Christine Lagarte's statement that the ECB could not shoulder the burden sent Italian government bond yields soaring by 60 basis points in a single day. The ECB had to pay a steep price, having to immediately launch an emergency bond-buying program worth €750 billion (p. 284).


Meanwhile, the worst-case crisis scenario this book most warns about is stagflation.
Stagflation is a phenomenon in which inflation does not subside despite an economic recession and rising unemployment (p. 266).
Unfortunately, signs of stagflation are visible everywhere.
In particular, China's slowdown in economic growth is one of the major reasons why the world is unable to escape its chronic economic recession (p. 240).
Meanwhile, the Chinese government's extreme zero-COVID policy to spur economic recovery raises concerns that it could cause supply disruptions by rapidly increasing global demand.
This could lead to the tearful efforts of financial authorities around the world to control inflation ending in vain.
Chronic or routine recessions and inflation are what summon the specter of stagflation.