Nuclear

When Reagan used to stick it to the Soviets

For all the flak that DJT copped today on social media for sticking it to the Rocketman, Venezuela and the United Nations, Reagan was no less tough in the rhetoric toward foes. Reagan’s speech in Berlin where he demanded Gorbachev “tear down that wall” was no less in your face than Trump telling Rocketman to smarten his act or face the music. The central instrument for burying the Soviet Union was Reagan’s massive defense build-up. He forked out $134 billion in 1980 and ramped it to $253 billion in 1989. American defense spending rose to 7% of GDP (c.4.5% now), dramatically increasing the federal deficit. The Soviet Union was compelled to keep up by raising the share of its defense spending from 22% to 27% of GDP, freezing the production of non-defence goods at 1980 levels. Economically it couldn’t keep up and by 1991 the Soviet Union folded. A small price to pay to end the Cold War. America did not wilt under Reagan as it has in recent years,

We should not forget the numerous occasions that former President Reagan openly used to ridicule the Soviets for being so backward. As the old saying goes, ‘never a truer word than that said in jest’. The joke about the curfew is a cracker.

Kim sends more firecrackers across Japan that could hit Guam

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This cannot continue. Another missile fired across Japan’s shores. This missile flying 3,700km. Guam is technically in range by that measure. As I said on The Bolt Report, Kim’s technology will get to a point where he can become a serious threat. Taking out the threat before it gets even more capable is the only credible option. Even more biting UN sanctions haven’t stopped his quest to launch more missiles in utter defiance. My key thought is that China will be coerced into forcing regime change. It cannot afford to lose the strategic buffer North Korea provides but it can even less afford US military action on its back door. Unilateral action by China will not be frowned on by the majority of the rest of the world if Kim Jong Un is neutered.

Some discussions have also questioned whether he lobs missiles over Tokyo airspace. The danger here is a failure through dense commercial air traffic lanes. In any event the world community can’t sit by and let this oppressive regime continue a weapons program to use for extortion. Trump was on a morning breakfast program yesterday discussing North Korea where he effectively said for “China to start taking action”.

As I wrote last week, Japan’s entire Aegis destroyer fleet from Maizuru is at sea. They carry the SM-3 anti-ballistic missile system. Japan cannot take North Korea’s actions as anything other than the gravest threat to national security.

This crisis has to have an ending. It can only be Kim Jong Un’s. Watch China’s movements closely from here. They’re reaching breaking point on strategy.

Kim’s pulse will be electromagnetic if he picks the wrong target

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Electromagnetic Pulse (EMP) is the latest buzzword coming from North Korea. The subject of EMP was revealed in James Bond 007 GoldenEye when Xenia Onnatop stole a helicopter and helped detonate ‘Petya’ over Sevrenaya. Anything with an electric circuit would be rendered unusable. Japanese breakfast programs were talking about what EMP might do if Kim Jong Un detonated a nuke at low altitude. Don’t forget the bomb dropped on Hiroshima exploded at 500ft. The impacts are greater.

The reality of EMP is more relevant in space. Much of the US military backbone comes from a vast array of spy and military satellites which help smart bombs and cruise missiles hit targets with such precision and connectivity between land, sea and sky. Much of the modern US satellite hardware is EMP resistant but it isn’t “bulletproof” to space junk. If Kim was able to detonate a nuke in space it could knock out some of the network. Apart from the billions invested in satellites we need to understand just how seriously America regards space as a sanctuary. Around 5 years ago the Chinese fired a missile to shoot down one of their older satellites. Apart from the advancement in Chinese technology which was of concern to the US it was also the amount of space junk from floating schrapnel that could damage US assets in space. If Kim hits satellites in low orbit he also risks taking out Russian and Chinese satellites too.

Remember when Reagan spoke of Star Wars in the 1980s? The point to weaponise space such that rogue enemy ICBMs could be taken out in the outer atmosphere.

The point here is simple. Should Kim threaten to drop an H-Bomb on Tokyo he leaves such a massive exposure to himself. US satellites remain active and he would be squashed in no time by military reprisals. There would be no way that China could stand by and back him were he to make such an attack.

The more disturbing point here is that he is rattling a sabre which is bearing ever closer to a line where the West is forced to take action to prevent his rogue status from having proper fangs. War on the Korean Peninsula is not an impossibility and the more the US chain is yanked the higher the likelihood action is taken. Markets aren’t pricing this.

Abe’s “Trump” card will be more effective than the UN

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The Japanese newspaper front pages are all splashed with the latest North Korean nuke test. Japanese PM Shinzo Abe has to quit asking the UN to step up sanctions. That is a purely optical illusion. Kim Jong Un is playing a different game. He doesn’t care. Trump is Abe’s only viable card to get Japan out of this long term mess. If Kim does possess the H-bomb it is clear that he intends to exploit his new toy box to snub his critics and take even harder lines to extort money.

While war is the least desired outcome, Kim must be careful not to bring down his own demise. Obama was the first US president Kim had direct exposure to but he would be wise to treat Trump as completely different. Trump maybe willing to remove the cancer that many presidents before haven’t. The sad reality is that having a 33yo dictator who subjugates his people like his father and grandfather before with such disdain has little to lose.

Getting a capable nuclear arsenal is not desired. It is clear he’d be willing to sell his technology to other tinpot dictatorships to top up the DPRK’s coffers. This has been done before when Israel blew up Syria’s North Korean derived and supplied nuclear facility in 2007.

China seems to be having less impact on young Kim. This should worry them.  China is the economic lifeblood of North Korea. The geopolitical buffer is a strategic must for China. There must be some circles calling for it to be turned into a Chinese protectorate. A Chinese led regime change where Kim Jong Un is granted an exile is a far better outcome than allowing US forces led strike to take it over

Although China may threaten to support Kim if the US preemptively strikes to topple the regime, they have said Kim’s on his own if he does anything stupid.

Kim isn’t stupid. However he is playing a very dangerous game of chicken with a player who realizes that this nuclear arsenal investment has to be stopped. It isn’t a question of if but when.

The idea that conflict can’t or won’t break out on Korean Peninsula is naive. Recall that the Korean War was never officially ended. Gut instincts suggest that if anyone is to take heavy handed action it is the Chinese that must do so. Beijing must also be wary of calling Trump’s bluff.

Abe’s sleepless nights won’t end until something definitive happens to North Korea. It is fraught with many risks but doing nothing now is the riskiest of all strategies over the long run. The UN is unlikely to achieve anything. Besides if they devoted even a slither of the energy and time they do to beat up Israel  one might have confidence in sanctions. Sadly too many vested interests with North Korea

The concern is the risk of Kim Jong Un missing the target

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At 6am this morning North Korea conducted a missile test which flew between Hokkaido and Japan’s main island Honshu. The real question is not so much the capability of his missiles but their short comings. The reality is a reasonable failure rate (c.33% in the past 3 years alone) has a high level of risk attached to it, especially when sending them over Japanese land. While most failures have been at the launch pad stage, the risk is that should the tracking and guidance systems fail mid flight over Japan even without warheads, considerable damage could be inflicted. Japan said it would shoot down such test missiles when Trump was threatening to intervene several months back but clearly swerved first in this game of chicken.

While Kim Jong Un’s technology is undoubtedly improving, the risk is that eventually it will reach a stage where he can be a belligerent imp with real capability. Up til now his armaments have been relatively crude. The sanctions put on the $12bn economy, mostly China, are biting. These missile tests would undoubtedly be costing Kim a relative bomb (no pun intended) to conduct. Still allowing his people to suffer isn’t a priority. The saber rattling is no different to his father and grandfather before him. Fire a few missiles, threaten others and get a cash injection to shut up and then go away.

Unfortunately this game of geopolitical chess gets worse as his capability gets better. He has nothing to lose whereas his neighbours stand to suffer relatively catastrophic downside. Tokyo is 125x larger in GDP terms than NK. Seoul 68x.

Does he intend to point one at Tokyo, Seoul, Guam or even Washington DC when he has the capability? This argument that a pre-emotive strike on North Korea won’t happen is getting weaker. China knows its strategic value as a buffer to the US. Bribing Pyongyang by buying its ginseng and coal is a cheap form of diplomacy. Beijing’s stance last month was telling. If the US preemptively strikes China will defend Kim. If Kim does anything stupid then he’s on his own.

Still if you know your enemy will eventually get to the stage it can physically harm you and threatens to do so it makes perfect sense militarily to eliminate the threat before it eventuates. After the capability is reached  the risks are factorfold higher. So for every argument that says conflict won’t happen (odds favor it not) the smarter bets will begin to ponder the growing chance something does.

Korean 5yr CDS have jumped 4bps to 62 today, still below the 70 during last month and well below Kim Jong Un’s first missile test at 120bps. GFC was around 700bps. So markets aren’t panicked just yet but gold back over $1300/oz is pricing it gets worse.

Don’t rule out a modern day Gulf of Tonkin incident. With each of these tests, electronic interference (cyber attack) could be a factor. To justify a retaliatory attack, guiding these missiles to hit a remote paddyfield in Aomori or inside Japan’s territorial waters is possible. China must be concerned about this. Electronic warfare is getting seriously capable. Remember when the Iranian centrifuges mysteriously blew up due to the Stuxnet virus? The virus told the centrifuge computers to spin the motors well above design tolerance such that they exploded.

Conspiracy theory maybe but geopolitics is a dirty game with huge long term implications and the rules are that there are none. Kim’s preemptive strike might not start with his finger on the button.

The Wolf who cried “Boy”

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North Korea’s threat to fire a nuclear missile at Guam should the US try anything to jeopardize the hermit kingdom’s nuclear programme is more the domain of an hysteric media for now. He is the wolf crying boy – “I will eat your sheep when I wish, what are you going to do about it?” Of course, no sane government can dismiss his threats. The 33-year old leader has assassinated subjects and relatives who he feared might pose a challenge to him. He taunts his enemies in full knowledge the collateral damage the West may suffer would likely be factor fold higher than he stands to lose. North Korea’s GDP is estimated to be around $12 billion annually. Tokyo’s GDP is estimated to be around $1.5 trillion, 125x larger. Seoul’s GDP is around $780 billion (65x North Korea) but is located in shelling distance. From a purely militaristic standpoint, North Korea doesn’t stand a chance. The US has spy satellites parked permanently over North Korea surveilling troop movements, missile test sites and US submarines will have constant watch over Pyongyang’s naval activity. Mutually Assured Destruction (MAD) is not a bargaining chip in this case. While it does raise the ‘risk’ factor, it is not enough to exclude war on the peninsula.

The problem is that all the while no action is taken, PyongYang’s arsenal grows more sophisticated. Kim has no plans to halt his development. In 1994 then President Bill Clinton came closest to taking action against its nuclear capability but in the end chose diplomacy. We are 23 years on and the capabilities are such that this game has increasingly limited life span. Trump made his thoughts clear in a 1995 interview. Try to talk him out and if all else fails take the military option

The more advanced his arsenal becomes, the more weight his demands carry. Kim is in his 30s. Assuming the West does nothing, there is another three decades of threats and bellicose to consider. Over time its weapons programme will be sufficiently credible to hit Washington DC. Just like Russian missiles in Cuba, America will not allow a condition which could threaten it to exist.

North Korea has 3 main nuclear missile launch sites (Musudan-Ri,  Punggye-Ri and Tongchang-Ri) among the fourteen nuclear facilities ranging from R&D, power generation,  mining and refined fissile material production. A surgical strike would be difficult to achieve without North Korea getting away a few missiles itself.

Why Guam? Of course one can view his threat in several ways. One, Guam is the current realistic technical capability of his nuclear weapons, two; Kim hasn’t said he’ll strike Washington DC which should be interpreted as evidence that he is not completely deranged and bragging about capabilities he does not yet have, three; he could theoretically bomb the US military installations in Okinawa which is closer than Guam and more likely to score a relative hit but he has been careful not to drag Japan into this contest (yet) and finally; his nuclear programme is his only bargaining chip. Were Kim to cease his atomic aspirations, he would literally be a sitting duck. He knows – as did his father and grandfather before him – the regime survives on the will of the Rest of the World to appease it. If he has no trump card, the RoW can ignore it.

On April 10th this year, China’s special envoy on the North Korean nuclear programme, Wu Dawei, visited Seoul with the idea of pushing a harder UN resolution in case of another nuclear test. In the short term China is hoping a short term halt to coal imports will bring Kim Jong-Un to heel they have not ruled out removing him entirely. It is the least preferred option but Trump’s moves will only mean China is being forced to up the ante. However China has been lamenting that it can’t force Kim to come to heel. Once again this is partly China testing the will of Trump versus his predecessor. Do not think for one second that China hasn’t been channeling Sun Tzu as to how it can pull off a geopolitical masterstroke by bringing Kim to heel and the US to back down. This is becoming harder to achieve, even more so with an unpredictable president.

Let us not forget the strategic benefits of North Korea to China. It provides a buffer to the US friendly South Korea and keeps furthering China’s status as a dominant force (economically and militarily) in the region. One of the last things China wants is the equivalent population of Australia (24 million) as refugees on its northern border. Best it remains contained inside a regime presiding over a tiny economy. Even less desirable is a US invasion/strike which puts a US protectorate on China’s doorstep.

Global markets are not reacting too erratically to this crisis. They are collectively taking the path of most common scenario vis-a-vis history to date. Minor risk on. Even Korean CDS spreads, at 14 year highs (61) remain well down on GFC and the death of Kim Jong-Il. However a president who wants to reassert US foreign policy after 8 years of willful abuse under his predecessor may be more than willing to take decisive action and put an end to the North Korean problem. He won’t risk it unless his generals can give a very high level of assurance the collateral damage will be minimal

While some media want to believe that Trump is itching for a war in North Korea or Iran to resurrect his sliding poll numbers, that is an obtuse way of thinking. North Korea is a growing threat. Pure and simple. If North Korea gets a capability to potentially hit the US mainland then that is untenable. Any country that threatens to attack another puts itself on a geopolitical chess board of its own making. This is dragging China into a game it would rather not play but inevitably Beijing realizes that it has to take control before Trump takes it from them leaving them in the worst of all worlds.

Cooler heads to prevail? Maybe but something suggests that North Korea is brewing beyond what markets are currently pricing.

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Storing the Fukushima nuclear waste

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Scattered throughout Fukushima prefecture are some 5.5mn black bags containing soil contaminated by the crippled reactors. This picture is on the outskirts of the exclusion zone. To put it in perspective this is what it looks like from the air. They now have huge black tarpaulins draping over them to keep it dry.

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Most of the ‘unusable land’ has been converted into waste dumps like this or solar parks. Cars with flashing blue lights waft slowly around the neighborhoods to prevent theft and looting from deserted homes.

Even driving into Sendai some 100km+ north the highways have radiation level information alongside speed limit signs. A reminder of that terrible event 6 years ago which was highly preventable had the money been spent on relatively low cost sensible placement of the back up generators (in the $10s of millions) on high ground. It was forgone because the plant was scheduled for closure 6 months after the quake. The idea was that the risks of a tsunami or quake were so negligible that penny-pinching was the right thing to do. Of course PM Kan refused to give the order to release the presssure inside the reactors against the advice of nuclear experts. The clean up is in the 100s of billions. Go figure.

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Fukushima City feels dead. It is a long way from the reactor but unsurprisingly infamous for one thing now. As I mentioned a few weeks ago I’m guessing the government will turn up investment projects to revitalize it.

For a good video on the reactor check ABC’s Mark Willacy on Foreign Correspondent