So we have a nuclear armed North Korea apparently attacking a South Korean military ship. South Korea finds fairly compelling evidence that this is what happened. North Korea gets belligerent at being called an aggressor. The US steps up its language on North Korea. I believe we have given South Korea a security guarantee, meaning that if the North attacks, we will send troops and/or nukes to defend the South. Fighting, and particularly nukes exchanged in the area have important follow-on repercussions for Russia, China, and Japan. This is starting to feel like it could be Galvaro Princip in 1914. It may be get-ready-to-crap-your-pants time. No wonder markets are down. If China or Japan gets into a shooting war, even a small one, things can go haywire.
It was back in March that a SK naval ship sunk killing 46 sailors or so. They’ve always suspected NK was behind it, but it wasn’t until the past couple of days that the international team, sent to convey the damage, have concluded the the missile did come from NK. In response SK has decided to resume its propaganda at the border, which it has ceased for the past six years. This includes blaring western music/news through speakers. Both armies are preparing for war. Canada and the US have already backed SK and Hilary Clinton is in China now, no doubt discussing the issue. As China is NK only supplier left and they’re always looked upon for economic support. China therefore has been caught in a pretty embarrassing spot. But hopefully will back SK when it comes down to it.
Also Kim Jung Il (of NK) has threatened war if any further sanctions are put on its country. SK just banned NK from using its waterway for cargo ships and Canada imposed sanctions on NK today, so it looks like things could get nasty. I’m not too sure why China and Japan would get into a shooting war? This seems like the whole world vs. NK type thing. Except on waiting to see what China does about this.
bchadwick Wrote: ------------------------------------------------------- > So we have a nuclear armed North Korea apparently > attacking a South Korean military ship. > > South Korea finds fairly compelling evidence that > this is what happened. North Korea gets > belligerent at being called an aggressor. > > The US steps up its language on North Korea. I > believe we have given South Korea a security > guarantee, meaning that if the North attacks, we > will send troops and/or nukes to defend the > South. > > Fighting, and particularly nukes exchanged in the > area have important follow-on repercussions for > Russia, China, and Japan. > > This is starting to feel like it could be Galvaro > Princip in 1914. > > It may be get-ready-to-crap-your-pants time. No > wonder markets are down. If China or Japan gets > into a shooting war, even a small one, things can > go haywire. Someone is happy with the Short S&P and Long Gold position 
and it’s not “rubber band timotimo”
Reggie Wrote: ------------------------------------------------------- > Except on waiting to see > what China does about this. China should sell North Korea to the highest bidder.
It is in China’s best interest to keep NK in check. It does NOT want NK to develop nuclear technology as this would threaten China’s autonomy in the East. Furthermore, China’s ability to shush NK would show the world what it is capable of, and would display how much “control” it has in the East. For NK, it is a time of political instability with a possibility of a coup within its regime. Kim Jong Il’s health is deteriorating, and although he picked one of his sons to be a successor, others in the regime might want to take advantage of this. In order to cover this possible weakness in the government structure, it can essentially be distracting the world by shooting missiles close to Japan and/or to Korea among its other acts. It can also be an indication that NK does not like the current SK president due to its policies. (The former president had a more “friendly” relationship with NK.) As far as the prospects of an escalating war (remember, they are still in a war), SK does not want this… at all. SK has everything to lose and nothing to gain. NK has nothing to begin with, so it wants to give the impression that it is crazy. Because NK has the “crazy” card, China can’t successfully keep it in check, and the West has to deal with them. However, much is to be said in that SK still has to have a firm stance to show that it will not tolerate this type of behavior from NK. I can go on and on about the powerplay situation, the prospects of war, history of the countries and the reuinification issue, but I will refrain. Haha
Well, I am happy with the performance of the position (though I got stopped out of 50% of my S&P short last Friday), and I added TLT (long treasuries ETF last week when it became clear that people were getting spooked about *everything*), but I’m really disturbed about what the long-term implications are. These things may resolve themselves, but there are so many somewhat-independent crises happening (China slowdown, Europe crisis, Korean crisis, US unemployment inching up along with deflation, UK coalition government, JGB buyers drying up). It’s looking mighty disturbing out there.
I’m gonna go with time-to-poop-your-pants. There is, id say, about a 10% chance this will play out well.
“never start a land war in asia”
I’m in SK right now… why so serious? I dont think NK is stupid enough to attack… They may spend 30+% of their GDP on military, but 30% of nothing is not a whole lot of power. They wouldn’t get very far, specially with the US supporting SK. Kim may be old, but he doesn’t want to spend his last few days in a prison ala Saddam.
libor.plus1 Wrote: ------------------------------------------------------- > I’m in SK right now… why so serious? > > I dont think NK is stupid enough to attack… They > may spend 30+% of their GDP on military, but 30% > of nothing is not a whole lot of power. They > wouldn’t get very far, specially with the US > supporting SK. Kim may be old, but he doesn’t want > to spend his last few days in a prison ala Saddam. He wont be captured. Secondly, no one can be completely sure how China will play along. Everyone wants to assume that China will try and rationalize NK out of doing something stupid, however, no one can be sure. Jim O’Neal, a pretty smart guy, has been saying for almost 1.5 months that China wil unpeg the Yuan “any given day.*” Has China moved it’s peg in any sort of meaninful way? Nope. They’re just playing lip serivce until we forget about it (because thats all America is really, just a fat kid with ADD and a nice big credit card). *Those were his exact words on a conf call we had w/ him.
One of my biggest concerns about North Korea is that it is a totalitarian regime with a cult of personality and a leader who is not-fully-sane. Kim Jong Il could decide to give the order to nuke the south, regardless of whether he thinks he could win or not. His health has been in question lately; I could imagine him thinking “I’m about to die anyway, let’s just take everyone out with me.” Then you have to ask whether the military establishment would follow such an order? Although it is possible that there would be enough organizational resistance that it would refuse to nuke the south because of almost assured retaliation with nukes, I’m not at all confident that this would happen. Firstly, the way these regimes tend to maintain control is that if you are declared a traitor, generally your entire family goes down with you, which does a really good job of ensuring obedience. Secondly, a refusal or a coup d’etat requires organized conspiracy, which is extremely difficult to do on short notice. So, yeah, mutually-assured-destruction worked when you had an authoritarian state run by an institution like the communist party, but it doesn’t work when one of the button-holders is a mentally unstable personalistic dictator with a cult of personality, secret police, and no limits to authority.
Great points Bchad, it’s always tough to try and think about different scenarios when you have such an extreme regime (that sounds like a good band name BTW). We are so used to thinking that all the proper circut breakers are in place, be it animate or inanimate, everyone is used to there being a back up or a process to follow. With NK KimJ could do exactly that “take out everyone.” It’s incredible to think that regime’s like NK exist in our world today and people stay there under their own will.
I saw a documentary on NK, and how Kim has a stranglehold on the entire country. A lot of time you hear about things authoritarian leaders do to their people, and you wonder why the people don’t just rise up and protest, or overthrow their leaders. The thing with NK is that the people are brainwashed from birth to truly believe that their leader is the greatest leader in the world. They have no doubt that they live in THE best country in the world. They have 0 exposure to the media, unlike other states like Iran. The term ‘Big Brother’ and ‘1984’ gets thrown around all the time with reference to governments, but NK is about as close as you get to the real deal. The only ones who really get what’s going on are government officials who get exposure to the outside world. Some of them have defected, most don’t because they know that would be the end of their family… but I’m sure Ocean Mist has a better idea on it than I do.
Ocean Mist, hot AND smart. Potential to be on the All Star list.
From CNN this morning: “North Korea warns it will meet war with ‘all-out war’” http://www.cnn.com/2010/WORLD/asiapcf/05/27/north.korea.south.korea.warning/index.html?hpt=T2 NK has missiles that may be able to reach the US West coast (whether those missiles can hit their targets is still in question). …I’m going out to buy some “Depends”, just in case…
In other news, US and world markets are up 3-4% for the day. “Buy the rumor, sell the news” or in this case, as it’s negative news, “sell the rumor, buy the news”.
Altough NK has a larger military it lacks the modern American military hardware that the South has, but the North has the bomb. Given this technological disparity I am worried that the North lacks the ability to wage a solid conventional effort against the South and that there would not be many incremental steps between the provacation just experienced and denonating the bomb. Oh and don’t forget about the Kim Jong Il nutjob factor and that the raison d’etre for his regime is anti anything outisde of NK sentiment.
Its getting harder to counterfeit Benjamins + Il’s health + China not “siding” as much with N. Korea at the negotiating table + N. Korea restricting international aid since 2005 + New member of the nuclear club (deterence) = Game time Or N. Korea is just trying to use extreme tactics to provide leverage when the five countries meet again to negotiate. In my opinion the probability of aggression seems only slightly higher than it was before N. Korea sunk the S. Korean ship. By this point Il probably “runs” the country about as much as JoPa coachs the Penn State football team. The caveat? Leadership changes can prove to be chaotic and unpredictible.