North Korea- considerations

Posted: August 10, 2017 in Uncategorized

The market started to be shaky and gold rallied on the war of words – but overall the reaction has been quite muted.

An example South Korea markets lost 1% (it is the best market this year with a +17%) – and if the war really ensued there will be devastation or ashes – depending on the weapons used.

The market is so forgiving as it thinks that the casualties would be too high and the pressure from South Korea and Japan will stop the US (interestingly enough South Korean are more worried by the US than North Korea).

I am more worried than others as I know history

  • North Korea will never give up its nuclear assets and President Trump will have to attack or lose face – something that he cannot allow right now.
  • Feeling still the scar of Pearl Harbor in Hawaii, Kim announcement that is considering attacking Guam strikes a particular chord with Americans. It would take just 8 minutes for a ballistic missile to reach it.
  • In the Second World War General Macarthur wanted to teach a lesson to the Japanese as he was kicked out. It costed 750,000 lives while it could have been easily bypassed.
  • Both the 1st World War and the Vietnam war escalation were due to misjudgment.

 

Hopefully I am wrong.

In case of war there are a few things that are different and need to be taken into consideration.

South Korea is the first nation fully integrated in the world system to be attacked – South Korea contributes to 2% of the world GDP and produces 40%  of liquid crystal displays and 17% of semiconductors. As production is now Just in Time – major disruptions will be felt all over the world.

The US Debt is already 75% of GDP – on average a war increases spend by at least 5% (like the second Gulf War).

The North Korean submarine fleet is composed by about 70 subs which could disrupt the Chinese commerce.

Cyber weapons could be used in large scale.

The widespread use of Exchange Traded Funds and AI algorithms would make any initial move exaggerated.

The positive things is that, relative to previous war, the Federal Reserve and various Reserve Banks knows the situation and are fully involved to save the world again if they must.

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