[The Editors' Verdict] The Historic Mission of the "Money Move" Must Succeed

Real Estate Speculation as Rent-Seeking: "The Enemy of Capitalism"

Household Assets and Debts Over-Concentrated in Real Estate, Even More Than Japan

If the Money Move Fails, Korea Faces Its Own "Balance Sheet Recession"

Scale Up Finan

Among the three factors of production, the monopoly and oligopoly of land have uniquely altered the course of history. For example, the French Revolution originated from a system in which less than 2% of the population—nobles and clergy—owned most of the land and exploited the rest. Real estate speculation is a representative form of rent-seeking behavior. Liberal economists such as Adam Smith and John Stuart Mill pointed out that rent-seeking is the enemy of capitalism, as it distorts resource allocation, creates entry barriers, and reduces social welfare.

The Lee Jaemyung administration is driving a "money move" from real estate to finance. As the KOSPI has repeatedly surged and plunged around the 5,000-point level due to the U.S.-Iran war, voices have already emerged saying that "the money move will be difficult to achieve." The strong support base of the "real estate republic" is undermining the momentum of the money move. However, the money move is a historic mission that any president must pursue. If this attempt fails, the future of our economy will become even bleaker.

Japan's prolonged stagnation serves as the most significant cautionary tale. Following the Plaza Accord in 1985, the appreciation of the yen weakened Japan's export competitiveness. The Japanese government responded with aggressive liquidity expansion, but much of the excess money flowed into real estate. There was even a saying that "if you sold all of Japan, you could buy the United States." In 1991, when interest rates were raised to quell soaring housing prices, the stock market crashed. Along with failed corporate restructuring and a shrinking working-age population, Japan's "balance sheet recession" began in this way.

The Korean economy is following Japan's path of crisis almost step by step. The difference is that among the three main economic agents, household debt is the critical problem in Korea, whereas in Japan it is government debt. In particular, in Korea, even household assets are severely concentrated. Two-thirds of household assets are tied up in real estate (compared to one-third in Japan). This severely limits the Bank of Korea's ability to use interest rate policy at its discretion. Similarly, during economic downturns, the government finds it difficult to defend growth rates through real estate stimulus policies (the Park Geun-hye administration's "buy a house with borrowed money" initiative being the prime example).

Through the "money move," we must reduce the proportion of real estate in household assets and debt and get idle money circulating. Only then can we avoid repeating Japan’s mistakes.

The size of Korea's financial market is relatively small compared to its economic fundamentals. As of 2024, Japan's nominal GDP is 2.1 times that of Korea. However, even with a very conservative estimate, the size of Japan’s stock and bond markets is more than three times larger than Korea’s. Japan's government debt-to-GDP ratio is among the highest in the world, yet the country endures thanks to the strength of its financial markets. Korea must also expand its stock and bond markets to match the scale of its economy. In addition to joining the World Government Bond Index (WGBI), Korea must also succeed in being included in the MSCI Developed Markets Index.

An active financial sector is essential for survival in the era of global artificial intelligence (AI) competition. In 2023 alone, capital expenditures (CAPEX) by the U.S. Magnificent 7 (M7) companies are estimated at USD 400 billion—a scale unimaginable for Korean conglomerates. For Korea to survive in global competition, the public and private sectors must join forces and mobilize all resources. Growth in the financial market is directly linked to securing competitiveness. The National Growth Fund, along with the domestic stock, bond, and derivatives markets, must play a major role in supporting the growth of companies competing on the global stage.

The growth of Korean finance matters, whether domestically or abroad. In 2024, the National Pension Service achieved record-breaking returns through domestic stock investments, following major gains from overseas equities the previous year. Real estate investment does not cross borders, but financial investment does, enabling both higher returns and risk hedging. Just as Japan has the "yen carry trade," Korea needs its own "won carry trade." This will help establish a stable current account surplus based on income balance.

We must strengthen the fundamentals of the financial market and prevent capital from flowing back into real estate. From real estate to finance, the "money move" must succeed.

Jo Siyoung, Head of the Securities and Capital Markets Department

This content was produced with the assistance of AI translation services.