Tuesday, June 12, 2018

News Note: North Korea - What Just Happened?

By now the world knows that something just happened in Singapore between North Korea and the United States that may impact world events. Exactly what has happened is yet to be determined. Based on the early news reports and comments from President Trump and Chairman Kim, it appears the two nations have at least been willing to start a process to try and end the tense standoff that has existed for decades on the Korean peninsula. Below are a few comments on how this impacts what we watch for here.

At this point in time, much remains unclear as to exactly what North Korea and the US have agreed to. Both leaders are saying that the agreement signed will result in "major change" in the future and imply that major change will be a gradual ramp down of tension and the transition of North Korea into a country that seeks to work with the world rather than against it. One news report even stated the US presented a video to the North Korean delegation on the virtues of using their beaches for condos and hotels rather than weapons testing (view it here).

Only time will tell of course what actually does happen. However, there appears to be enough goodwill on both sides to eliminate the further ramping up of tensions that we had seen up until a few months ago. I doubt North Korea will be doing further nuclear and missile tests. The US has agreed to end war game exercises. These would be concrete first steps to show sincere good faith if they are carried out. 

For our purposes here, I believe these events will remove a lot of geopolitical instability in the world now that could have created systemic risk to the existing global financial system. Removing that risk would be a huge plus for the world and also mean that once again a major change from the existing system based on the US dollar as global reserve is not likely any time soon. We still have remaining potential systemic risks for sure, but taking a big one like this off the table is certainly a good thing. Let's hope it is real and that it lasts.

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