Interesting Perspective on Korea

We recently had the opportunity to listen to Professor Charles Hill, a political science professor from Yale University who came by our office to lead a discussion with our clients on the emerging risks in the Korean peninsula.

Charlie's ultimate conclusion was that despite saber rattling, the North Koreans would continue to be rational actors. While the recent sinking of a South Korean warship was an act of war, it was a well thought out action, with expected responses. North Korea pushed the envelope, and while the response has been negative, the likely expected outcome will be some sort of appeasement of the North Koreans by the world community.

After walking us through the history of the Korean conflict and probabilities of increased conflict between the two Koreas (which according to Charlie is less than 10% and would only occur in a scenario where an action was grossly misunderstood), Professor Hill began describing an emerging Geopolitical Risk Zone in the waters of Asia. He described a scenario in which the U.S. would have to reassert itself and its domination of the global shipping lanes to protect its allies against rogue attacks such as the North Korean submarine attack, but also reassert its strength vis-à-vis China in the Asian waters.

Obviously this type of new strategy would not come without a cost for the United States, and could require a massive build up and redeployment of the Navy. As George Friedman from Stratfor noted in his recent book, "The Next 100 Years":

"The U.S. only emerged as the decisive global power after World War II and is still immature. The U.S.'s power is based on its Navy and ability to control both
oceans, the Atlantic and the Pacific, which no other power has been able to do."

Over the coming year, we will be contemplating more of these Geopolitical Risk Zones as war, historically, has been a great way to outgrow sovereign debt burdens.

Source: HEDGEYE, daily e-mail alert.