More Rumors Of War: N Korea Examining A Plan To Strike Guam, China Holds Wargames, Trade Wars Usually Become Shooting Wars

NK is 'carefully examining' a plan to strike Guam

• North Korea said it is 'carefully examining' a plan to strike Guam and it will be put in place once leader Kim Jong Un makes a decision
• This comes after Trump told the North that additional threats of violence against the U.S. 'will be met with the fire and the fury like the world has never seen'
• North Korea said earlier that the U.S. would 'pay dearly' for the United Nations sanctions regime it successfully imposed over the weekend
• Also threatened 'physical action' and a 'mobilization of all its national strength'  
• Trump previously said: 'After many years of failure,countries are coming together to finally address the dangers posed by North Korea. We must be tough & decisive!' 
• Russia and China reluctantly signed on to a United Nations resolution that puts a hard stop to a third of North Korea's export revenue 
• US officials believe Kim Jong-Un has built a miniaturized warhead for missiles and are ramping up their rhetoric in turn 
• Defense Intelligence officials say he now has 60 nuclear weapons in his arsenal 

North Korea said it is 'carefully examining' a plan to strike the U.S. Pacific territory of Guam with missiles, just hours after President Donald Trump told the country that any threat to the U.S. would be met with 'fire and fury.' 

A spokesman for the Korean People's Army, in a statement carried by the North's state-run KCNA news agency, said Wednesday the strike plan will be 'put into practice in a multi-current and consecutive way any moment' once leader Kim Jong Un makes a decision.

Guam, which is roughly 2,128 miles from North Korea, is home to both Andersen Air Force Base and Naval Base Guam housing thousands of American service members and their families. 

Roughly 28 percent of the island is occupied by the U.S. military. The base houses bomber assurance and deterrence missions, including six B-52s which the air force says provide 'strategic global strike capability [to] deter potential adversaries and provide reassurance to allies' and that they are ready to go.

China holds wargames as North Korea tensions spike

The Chinese navy and air force flexed their muscles in live-fire drills in seas adjacent to the Korean Peninsula, the defence ministry said, amid regional tensions over North Korea's pursuit of nuclear weaponry.

The "large-scale" exercises were being conducted in the seas and skies off China's east coast in the Yellow Sea and Bohai Gulf, and included the firing of dozens of missiles, a notice posted late Monday on the Ministry of Defence website said.

Naval and air force assets including dozens of ships, more than 10 aircraft, submarines and an unspecified number of coastal defence personnel took part in the drills, which the ministry said were aimed at testing weapons and honing the military's abilities in conducting coastal assaults and intercepting air targets.

The ministry did not specify how long the drills were to last but a four-day shipping ban ending on Tuesday was issued for the area where the drills were held, according to notices by the military and local authorities.

It was not immediately clear whether the wargames were meant to send any sort of message.

But the announcement comes just days after China backed a US-drafted UN Security Council resolution passed on Saturday that significantly stiffened sanctions against North Korea for its pursuit of nuclear and missile weapons systems.

Now, A Trade War; Next A Shooting War?

A popular thesis since the 1930s is that a natural progression exists from currency wars to trade wars to shooting wars. Both history and analysis support this thesis.

Currency wars do not exist all the time; they arise under certain conditions and persist until there is either systemic reform or systemic collapse. The conditions that give rise to currency wars are too much debt and too little growth.

In those circumstances, countries try to steal growth from trading partners by cheapening their currencies to promote exports and create export-related jobs.

The problem with currency wars is that they are zero-sum or negative-sum games. It is true that countries can obtain short-term relief by cheapening their currencies, but sooner than later, their trading partners also cheapen their currencies to regain the export advantage.

This process of tit-for-tat devaluations feeds on itself with the pendulum of short-term trade advantage swinging back and forth and no one getting any further ahead.

After a few years, the futility of currency wars becomes apparent, and countries resort to trade wars. This consists of punitive tariffs, export subsidies and nontariff barriers to trade.

The dynamic is the same as in a currency war. The first country to impose tariffs gets a short-term advantage, but retaliation is not long in coming and the initial advantage is eliminated as trading partners impose tariffs in response.

Trade wars produce the same result as currency wars. Despite the illusion of short-term advantage, in the long-run everyone is worse off. The original condition of too much debt and too little growth never goes away.

Finally, tensions rise, rival blocs are formed and a shooting war begins. The shooting wars often have a not-so-hidden economic grievance or rationale behind them.

Is this pattern repeating itself today?

Sadly, the answer appears to be yes. 

The new currency war began in January 2010 with efforts of the Obama administration to promote U.S. growth with a weak dollar. By August 2011, the U.S. dollar reached an all-time low on the Fed’s broad real index.

Other nations retaliated, and the period of the “cheap dollar” was followed by the “cheap euro” and “cheap yuan” after 2012.

Once again, currency wars proved to be a dead end.

Now the trade wars have begun. On Thursday, July 27, the U.S. Congress passed one of the toughest economic sanctions bills ever and sent it to President Trump for signature. Trump signed it, although not enthusiastically.

But Trump’s views don’t really matter. The bill was passed by veto-proof majorities in the House and Senate, so even if Trump vetoed the bill, Congress would have overrode him and the sanctions would become the law of the land.

This new law provides that U.S. companies may not participate in Russian efforts to explore for oil and gas in the Arctic. But it goes further and says that even foreign companies that do business with Russia in Arctic exploration will be banned from U.S. markets and U.S. contracts.

These new sanctions pose an existential threat to Russia because depends heavily on oil and gas revenue to propel its economy. Russia tries to control new discoveries in order to maintain its quasi-monopoly position as the premier energy provider to Europe. Russia needs Western technology to meet the challenges of Arctic exploration.

In effect, this law handicaps Russia’s efforts financially and technologically and weakens its grip on global energy markets.

Russia has already vowed to retaliate.

Yet Russian retaliation will not consist of reciprocal sanctions on the U.S. Russia has said it will strike “asymmetrically.” This means Russia will use the means it is best at, including cyberattacks.

If you wake up one day soon and the power grid is down and banks and stock exchanges are closed, you can thank President Putin and the U.S. Congress for starting a financial and cyberwar that neither side could control.

Meanwhile, the long-expected trade war with China has begun at last. This is a trade war that President Trump threatened the entire time while he was on the campaign trail. Yet after Trump was sworn in as president he did nothing about Chinese trade and currency practices. Trump did not declare China a “currency manipulator” and did not impose tariffs on Chinese steel and aluminum being dumped on U.S. and world markets.

By November, the U.S. will label China a currency manipulator, which will start another review process, leading to still further sanctions. Like Russia, China will not take any of this lying down but will retaliate with its own sanctions, tariffs and bans on U.S. investment in China. Get ready for an all-out financial war between the U.S. and China.

This trade and currency war will shake markets and be a major headwind for world growth.

Germany is also in the crosshairs because of its huge trade surplus. Trump has already torn up the TPP trade agreement and has put Canada, Mexico and South Korea on notice that their trade deals need to be renegotiated.

Next comes the shooting war with North Korea, which will inevitably draw in Russia, China, South Korea and Japan. This will be tantamount to World War III.

As Mark Twain reputedly remarked, “History does not repeat, but it does rhyme.”

Today looks like a replay of the 1930s. Let’s hope things do not go as far as they did then. Markets are not priced for the worst outcomes based on the lessons of history.

As the progression of currency wars, trade wars and shooting wars plays out, get ready for some major market moves to the downside as the reality of this sequence begins to sink in.

Specter of coup, surge in violence haunt Venezuela

 Venezuela appears to be sliding toward a more volatile stage of unrest after anti-government forces looted weapons during a weekend raid on a military base and frustration over what some see as an ineffectual opposition leadership boils over.

Last week's installation of an all-powerful new legislative body run by leftist President Nicolas Maduro's Socialist Party loyalists, despite massive protests and a global outcry, has left many Venezuelans feeling there are no more democratic options to oppose the government.

That sentiment may have helped trigger Sunday's raid on a military base near the city of Valencia by soldiers and armed civilians, in which the government said two people were killed. Venezuelan authorities say they are hunting 10 of the attackers who escaped with a cache of weapons.

Government repression, however, threatens to push militants within the protest movement underground and into the formation of paramilitary or rebel groups in a country awash with weapons, according to political analyst and pollster Luis Vicente Leon.

"As the government radicalizes, these groups will tend to grow and the future could be full of conflict," Leon told Reuters.

Japanese fighters conducted air drills with U.S. B-1B bombers on Tuesday

Japan said it had conducted joint air drills with U.S. supersonic bombers in Japanese skies close to the Korean peninsula on Tuesday as tension in the region escalates amid North Korea's continued ballistic missile tests.

The exercise around Japan's southern Kyushu island involved two U.S. Air Force B-1B Lancer bombers and two Japanese F-2 jet fighters, Japan's Air Self Defence Force (ASDF) said in a news release.

North Korea said on Wednesday it is considering a strike on the U.S. Pacific territory of Guam, hours after President Donald trump said any threat from Pyongyang would be met with "fire and fury."

Andersen Air Force Base on Guam is where the U.S. keeps its B1-B bombers deployed to the Asia Pacific.

The U.S. planes, which are capable of carrying nuclear bombs, followed up the drills with Japan with a separate exercise with South Korean Forces, the ASDF said.

North Korea Threat Comes After Trump Vows ‘Fire and Fury’ 

President Donald Trump bluntly warned North Korea against making any more threats to the U.S., saying the country “will be met with fire and fury like the world has never seen.”

Within hours of Mr. Trump’s comments, North Korea made its most specific threat against the U.S. yet. Through its official media, North Korea said it was considering firing missiles at Guam, a U.S. territory in the Pacific, and making the U.S. “the first to experience the might of the strategic weapons of the DPRK”—the Democratic People’s Republic of Korea, North Korea’s formal name. 

Meanwhile, a senior Trump administration official said Tuesday that Washington shouldn’t assume it will be able to contain a North Korea with nuclear-armed intercontinental ballistic missiles through traditional deterrence methods.

“We are not going to allow North Korea to hold American cities hostage,” the official said.

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Trump: North Korea 'will be met with fire and fury like the world has never seen' if more threats emerge