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North Korean Nukes - The Next Black Swan?

Posted by Brock Bowers on

There’s more to North Korea’s boy dictator Kim Jong-un than meets the eye.

And possibly less.

Why does he persist in threatening the world’s only superpower with nuclear attack?

A compelling question.

The answer can be found in asking another: Who really benefits from the nuclear showdown between North Korea and the US?

There are many interpretations for Kim Jong-un’s motivations, but the short answer is: China and Russia benefit the most.

Rogue state is a key player

In fact, the “rogue” nuclear totalitarian state of North Korea is playing a key role in China and Russia’s global plans.

Both powers want to eliminate American influence – and American military presence - in their particular spheres of influence in order to build their respective empires.

More to the point...

One of China’s main objectives is to kick the US out of the Asian-Pacific.

Russia’s goal is to do the same in all of Europe and the Mideast.

China and Russia - Frenemies

It’s no secret that China and Russian have longstanding strategic partnership to achieve these goals.

Both authoritarian regimes have other policy interests as well, but these two by themselves reveal a clear logic to Kim Jong-un’s outrageous behavior.

North Korea’s nuclear brinksmanship may be the push needed to permanently undercut the world’s confidence in American military and economic leadership.

Here’s why…

Will dollar-based assets collapse?

With the petrodollar on its way out and American deficits topping $20 trillion and growing, confidence (by way of military power) is the only thing supporting the US dollar.

Break that dollar-military spell, the Chinese and Russians thinking goes, and America’s economy gets broken as well:

“Start taking away the fundamental building blocks of the international order, particularly American military power, and the results are all but certain to be major instability, increased conflict rates, rapid proliferation of nuclear weapons, economic dislocation and, ultimately, serious and growing threats to security at home.” (Emphasis added.)

That means dollar-denominated assets, such as stocks and bonds, could see their value evaporate overnight.

Why North Korea is going ballistic right now

The timing of the boy dictator’s nuclear posturing is significant, too.

China seems in a bit of a hurry because their economy is much more fragile than many realize.

With its current debt-to-GDP ration running above 230% of GDP and set to be more than 300% by 2022, the IMF warns that China will face a new and deeper financial crisis sooner than later.

But Russia’s economy is arguably in even worse shape…

American economic sanctions and the continued low price of gas - helped along by record US oil production and exportshas left Russia’s economy at crisis-levels of unemployment and inflation.

Therefore, both Chinese and Russian economies may show themselves NOT to be the alternatives to the dollar-based trading system that they’d like the world to think they are.

Which means pushing one's perceived advantage while one has it.

And one more timing factor - and perhaps just at important - the American military is at its weakest in 20 years.

The Trump administration has promised to fix this problem, but that will take years...

But the North Korean showdown with the US is happening now.

An impossible situation for the US?

President Trump is being tested early in his presidency like no other has and has record low domestic as well as international support.

So far, diplomatic efforts have made no definable progress, only adding to the condemnation from the US mainstream media.

The key here is that America must find a way to take nuclear-armed missiles out of North Korea.

And yet, any military action would also certainly spook the market and risk a wider war with China and possibly Russia.

That’s an unlikely event, so the conventional thinking goes...

But any outcome that leaves North Korea a nuclear-armed country is a defeat for American prestige and discredits its military alliances.

Rapid erosion of confidence in the US…and the dollar

Such an outcome could easily undercut confidence in America’s ability to defend its allies and the financial system it runs.

All assumptions about whether America would honor its defense treaties would be in doubt.

Such a blow to America’s international standing may well cause a major dollar crisis..

A collapse in the US Treasury market would likely not be far behind.

As it is, China continues to cut its holdings of US Treasury bonds.

North Korea - the perfect proxy

Both China and Russia claim to be unable to dictate the dictator’s actions, but does that ring true?

China’s support was a main factor of his father holding onto power and without Chinese backing, it’s doubtful Kim Jong-un would remain in power for very long.

And of course, both China and Russia have a decades-long history of supporting and even encouraging North Korean aggression, going as far back as the Korean War.

Then as now, the goal was to entangle and weaken American power and influence.

And, with China and Russia heavily involved in North Korea’s economy (even if they’re at odds with one another), both have ample leverage with their neighbor.

Both supply North Korea with food, fuel and other staples, as well as funding their nuclear arms program.

Thus, their claims of being unable to influence North Korea’s behavior are simply not credible.

For all of these reasons, North Korea is the perfect proxy for both China and Russia...

Kim Jong-un does and says what China and Russia can’t

They both reap the benefits from North Korea's nuclear antics while the fat boy in Pyongyang gets all the attention - and protection - that he apparently needs.

Meanwhile, there seems no clear way for the US to be in a better position after the crisis than it was before the crisis began.

For the US, the fallout may be more economic than nuclear, with Americans paying the price.

But China and Russia – as well as North Korea – expect that they will be better positioned because of it.

When it comes to understanding why he does what he does, it would appear that Kim Jong-un may not be such a rogue after all.

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