CH11 : War & Opportunities

Jongno Bank Street.

I left Euljiro and headed to Jongno's Bank Street. It would take some time for David to find me, so I decided to take care of my business in the meantime.

First, I needed to open a letter of credit to reassure Razak, the merchant from Singapore.

"Seriously, there's no foreign exchange bank at this time?"

After wandering around for a while, I concluded that the foreign exchange bank hadn't appeared yet.

I was flustered.

I understood why Sam-bok had faced such humiliation at Johong Bank despite having an export contract.

If there was no bank dedicated to handling export and import transactions yet, I thought I should go to the Bank of Korea.

A letter of credit (L/C) is a document that ensures the safety of transactions between exporters and importers in international trade, issued by a bank.

A letter of credit is often compared to a contract brokered by a real estate agent, but it is more like a secure transaction system used in online trades.

For example, when dealing with an expensive luxury bag, both the seller and the buyer would want to avoid fraud.

In such cases, we use a mediation transaction site.

The mediation transaction site receives the payment for the bag in advance and only transfers the payment to the seller once the buyer has received the bag and confirmed there are no issues.

Although there is a fee, it is the safest method to avoid fraud on both sides.

International trade, in particular, is very vulnerable to fraud due to the physical distance, so it is a global standard for the bank to hold the payment and release it after verifying all customs documents.

The term "letter of credit" was named to indicate that the bank understands the details of the export and import to ensure mutual trust.

"I can't believe I have to go to the Bank of Korea to open a letter of credit. It's ridiculous."

As I passed through the imposing front gate, I saw a sign for the "Foreign Exchange Department of the Bank of Korea" in one corner.

It seemed that the government was promoting export policies, but the 1960s financial sector hadn't even properly established export procedures.

"Hello."

"Welcome, how can I help you?"

"I'm from Daese Industries. I'd like to open a letter of credit for an export to Singapore."

"Please fill out the letter of credit application form. You'll also need a commercial letter of credit agreement, an export sales contract, corporate registration, and a seal. The application forms are over there."

The female clerk at the counter asked for the related documents in a stiff tone. Not a hint of friendliness.

It seemed that the stories from senior colleagues about having to give candy to bank staff to get things done were no joke.

"Here it is."

I filled out the application form and handed it over to the counter.

Fortunately, Sam-bok had completed the corporate registration, so I could complete the application form.

"Please wait."

She started typing vigorously.

Transcribing the application form into typing again was a symbol of the inefficiency of the 1960s.

Time dragged on tediously.

***

"Sir, it's done."

"Ah, yes. Thank you."

Finally, the letter of credit was issued.

It took well over two hours.

This was before the financial sector had adopted the "quickly, quickly" culture.

"Now, with this, I can secure the IDA loan, get funding from the Industrial Bank, produce goods, obtain export approval, ship them, get the shipping confirmation, and then bring it to the bank to finally get my hands on $400,000. Complicated."

The first step was always the hardest.

In the 21st century, I would have gone around investment companies, but in the 1960s, there were many opportunities but no money in the market.

Looking at it that way, the 1960s were indeed a romantic era.

There were more opportunities for big successes than there were money.

"Shall I head back? David will come to the factory to find me eventually."

I hoped that when he came to find me, I could present this letter of credit and secure tens of thousands of dollars from the IDA loan.

I left the bank with that hope.

While waiting for the bus at the stop, a black official car stopped in front of me.

"Found you! Mr. Woo! It's me, David."

"David. How did you find this place?"

"Get in. Quickly."

"Get in?"

"I have somewhere to go. You won't regret it."

Regret? I've been waiting for you.

"Alright."

I got into the car and shook hands.

"Glad I found you. I figured you'd go to Jongno's Bank Street, and I was right."

As expected of someone who predicts the economy, he predicted I would go to the bank street. Smart.

"Where are we going?"

"We're heading to the Yongsan U.S. 8th Army Engineering Corps."

"Why there... Ah! They have computers there."

"You know a lot."

By this time, American engineers and economists were already using computers.

By 21st-century standards, it was just an engineering calculator, but it was quite useful since it calculated hundreds of times faster than humans.

"Why do you need me?"

"To answer questions about the Vietnam War and U.S. inflation."

Of course, he must have seen the note on the back of my business card.

As an economist, David would naturally attract attention when warning about the risks of national policies, and gain significant fame when those warnings came true.

"Hmm, how much was the U.S. inflation rate during the Vietnam War again? Probably around 6%."

It wasn't difficult to guess.

Although it was a painful memory, it was a matter of recalling my previous life running a small construction company.

Inflation always repeated, and the cycle was always about 10 years. Although there were some differences, the price increase was about 6% whenever there was an economic crisis.

I remember that the inflation rate skyrocketed to over 8% during the 1990s IMF crisis.

***

Yongsan U.S. 8th Army Engineering Corps.

While trying to recall my memory, we arrived at Yongsan.

"Stop! Halt."

"I'm David from the World Bank. We're here to use the computer."

"Do you have authorization?"

"Here's the certificate."

"Who is this next to you? He looks Korean."

"He's my assistant. I vouch for him."

"Pass!"

"Thank you. Keep up the good work."

We passed the U.S. 8th Army Engineering Corps checkpoint very easily.

It seemed that David and the guard were familiar with each other.

The place where the car stopped was a very impressive building.

It looked like a small dome stadium, a modern structure.

"Amazing."

"Isn't it? I'm impressed every time I come here."

"There's a keyboard and a monitor."

I was even more surprised to find a keyboard and monitor.

I heard that 1960s computers input data by punching holes in paper.

"Haha, of course. This is a state-of-the-art computer worth $150,000. You could say it's even more expensive since it's hard to get even with money."

It was amusing that an engineering calculator cost $150,000.

"There's an inflation model here, right?"

"That's correct. How long do you think the Vietnam War will last?"

David asked suddenly.

To me, it was a very obvious question, but for David, it was a question he couldn't have thought of a few hours ago.

Because, at this time, the U.S. government and other countries thought the Vietnam War would end quickly if the U.S. intervened. It was a fight between the world's strongest military power and a small Southeast Asian communist party.

However, behind the Viet Cong was the massive communist bloc of China and the Soviet Union.

"It will last at least 8 years. Both the free world and the communist bloc have learned a lot about confrontation during the Korean War."

"Confrontation?"

"Of course. Vietnam has hellish tropical jungles. Advancing the front line even 1 km a month would be difficult."

The U.S.'s strategic mistake was underestimating the tropical jungles of Southeast Asia and the Viet Cong's guerrilla tactics.

Honestly, time was on the Viet Cong's side.

As the war dragged on, the already poor Viet Cong had little to lose, but the affluent U.S. had much to lose.

There were significant casualties among young soldiers, and the money spent on a foreign war was enormous.

"Tropical jungles as a variable!!! That makes sense. So, you said inflation would occur in the U.S.?"

The U.S. didn't lose militarily in the Vietnam War but had to withdraw due to dollar devaluation and severe inflation caused by war expenses.

Due to the inflation aftermath, the U.S. had to abandon the gold standard, causing economic instability in Europe and the Middle East and eventually triggering the oil shock. The Vietnam War had a global ripple effect.

"Of course. No matter how wealthy the U.S. is, a prolonged war is dangerous. You know that Britain had to cede world hegemony to the U.S. despite winning World War II."

David could only nod.

Using historical facts to support the argument was more convincing than just talking about inflation risks.

"That makes sense. If the Vietnam War prolongs, what level of inflation do you expect in the U.S.?"

David treated me like a great scholar.

It was a question an ordinary person couldn't answer.

But I knew the answer.

"Well, even at a rough guess, the U.S. foreign deficit will exceed $5 billion annually."

"$5 billion annually! Is that even possible?"

"Why do you think it's impossible? If the U.S. engages in full-scale warfare in Vietnam, it will likely be more than that."

At the peak of the Vietnam War, the U.S. spent nearly $20 billion annually on war expenses.

"Full-scale warfare!"

"A confrontation inevitably leads to full-scale war if the North Vietnamese, or rather the communist bloc, do not give up on expansion."

"!!!!!"

There was no way the communist bloc would stop expanding in this era.

It was a time of intense ideological conflict.

The U.S. entered Vietnam with naive thoughts and quickly found itself in a quagmire.

"Yes, you're right. It's a plausible scenario."

It's not just a plausible scenario; it's a fact.

"Moreover, it presented a massive opportunity for us."

Our country earned $5 billion in foreign capital due to the Vietnam War boom.

I heard that our construction companies began to venture overseas in the late 1960s because of the large-scale civil engineering projects as the U.S. expanded its operational range to Southeast Asia.

"If the war lasts over 8 years with an annual war cost of at least $5 billion... inflation..."

David began inputting data.

He was trying to calculate U.S. inflation using a mathematical model.

"Even rough mental math suggests that the value of the U.S. dollar would plummet by over 20%, and inflation would approach 6% annually. Unfortunately..."

I shook my head in mock sorrow.

If I had been born in the U.S., I would have joined a fund company, gone all-in on short positions, and become a millionaire instantly.

"Gasp! How can you do that mental math..."

David was astonished, alternating between looking at the computer monitor and me.

He stood up suddenly and gulped down cold water. He seemed more excited than distressed.

"Mr. Woo, what would you do? Is there any way to mitigate this? I want to hear your opinion."

"What else can we do? The U.S. needs to import cheap, high-quality goods from Korea. This would stabilize prices and allow for a soft landing to some extent. That's the only risk-hedging method I see."

"Import Korean products?"

"Of course. If you import cheap, high-quality products, even Japanese and German products will lower their prices. The U.S. should strategically use Korea as a production base for domestic consumption."

"Amazing insight."

It's not amazing insight; it's just history.

Despite struggling in Vietnam, the U.S. home front remained relatively stable because cheap goods from Korea were flooding in.

Similarly, in the early 2000s, when Chinese products swept the world, global prices stabilized significantly.

Cheap products might be annoying for consumers, but they have economic significance.

Cheap products themselves lower prices and existing companies join the price competition, leading to lower prices.

"Of course, there are prerequisites. To produce decent goods, the U.S. needs to invest in Korea. The construction funds for the petrochemical complex would be a priority."

"Are you talking about the IDA loan?"

"Oh, does it sound like that?"

I smiled.

After a long conversation, the topic of the loan finally came up.

Honestly, shouldn't I get a loan after all this consulting?