Balancing Act

Reuters

(Reuters) - South Korea's broadest L-money supply measure in July grew 9.0 percent from a year earlier, accelerating from an 8.1 percent rise in June on improved money flows through the financial industry, the central bank said in a statement.

The CPI in Korea is around 4.2% as of April 2011.  It would be unwise to continue inflating the money supply given the current CPI rates.

Here's recent economic news regarding the inflation rate in Korea from the San Francisco Chronicle dated 9/8/11.

South Korea and Indonesia held off from raising borrowing costs today amid mounting risks that the global recovery will stall even as inflation may accelerate. 

The Bank of Korea held the benchmark seven-day repurchase rate at 3.25 percent, while Indonesia's central bank left its benchmark interest rate unchanged at 6.75 percent, they said in statements from Seoul and Jakarta. The central banks of Malaysia and the Philippines will probably also keep their benchmark rates unchanged when they meet later today, according to two Bloomberg News surveys of economists.

From the same article...

Inflation has accelerated even after policy makers boosted borrowing costs three times this year and the government imposed price controls. Consumer prices in South Korea rose 5.3 percent last month from a year earlier, the biggest gain in three years. Governor Kim said inflation may be higher than expected and the central bank's 4 percent target ceiling "may not be achievable" this year. 

President Lee Myung Bak held an emergency cabinet meeting on July 20 to discuss ways to contain inflation as the rising cost of living hurts his popularity. Lee's approval rating stood at 34.4% last week, compared with 76% in his first week in office in Feb. 2008, according to Realmeter, a polling company in Seoul.

In summary, the Korean central bank have been increasing the money supply as price inflation continues to threaten the economy while keeping the interest rates steady due to the uncertainties rising from the financial crisis in the EU.

If they lower the interest rates and continue inflating the money supply fearing that the European financial crisis will worsen, price inflation will accelerate further.  If interest rates increase and money supply decreases to contain price inflation,  the economy will slow down or go into recession.  They're screwed either way.  I think the United States will face similar problems in the near future.