James Pethokoukis

Politics and policy from inside Washington

North Korea: Global markets are also potential prisoners — and Clinton can’t help them

Aug 5, 2009 13:40 UTC

Strategist Andy Busch of BMO Capital Markets provides some interesting insights on the situation in North Korea:

While the Obama administration denies this, the fact Clinton was allowed to go signals a major shift in foreign policy by the US towards the rogue regime.  It could be laying the groundwork for good relations during a power transfer from Kim Jung-Il to his son which may happen sooner than most think.
It’s this transitional period that will be extremely dangerous and may see NK become more belligerent with missile launches and fishing boat seizures. Internally, North Korea could implode and their nuclear material may be at risk.  An incident would garner world-wide attention and a response from either China or the US.  China’s biggest concern would be for a mass of North Koreans coming into their country as refugees.  Japan and South Korea’s biggest concern would be for a missile to be launched towards them.
While I was at the Pacific Economic Conference in Vladivostok, Russia, attendees were very concerned over the developments in North Korea.  Everyone was worried about what would happen to Russian oil and natural gas exports should North Korea explode.
North Korea is inherently unstable.  During a power transition, it will be even worse and more difficult to predict the outcome. Markets should have a strong risk off reaction with equities sold, bonds bought, and US dollar bought.  Watch for it.

North Korea collapse could cost $1 trillion

Jul 13, 2009 16:43 UTC

This from my Reuters colleague Dean Yates:

South Korean estimates have said it would cost $1 trillion or more to absorb the North. Financial markets in Seoul would plunge given how expensive and messy such a transition could be.

My spin: I am sure the South has watched the German example closely and shuddered.


James is correct about the South drawing grim lessons from the German reunification experience. I recently viewed a documentary on NK in which a SK government adviser said precisely that.

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