The Logic Of War

Tyler Durden's picture

Authored by James Rickards via The Daily Reckoning,

This was the week that the logic of war collided with the illogic of bubbles. So far, the bubble is winning, but that’s about to change.

The “logic of war” is an English translation of a French phrase, la logique de la guerre, which refers to the dynamic of how wars begin despite the fact that the war itself will be horrendous, counterproductive, and possibly end in complete defeat.

As applied to North Korea, the U.S. has made it clear that if it is forced into a preemptive attack to destroy North Korea’s nuclear weapons and missile programs, it will not stop there. The U.S. will aim to decapitate the regime and replace it with something more reasonable.

This could be the start of a gradual reunification of the Korean peninsula on terms favorable to the U.S. In effect, we would be winners in the original Korean War fought from 1950 to 1953.

North Korea has made it equally clear that any attack by the U.S. will result in massive artillery and missile bombardment of South Korea, and possibly Japan and U.S. bases in the region.

Even if North Korea has not yet produced nuclear armed missiles, it does have enormous conventional firepower and missiles. It could possibly detonate a nuclear “device” even if it does not yet have a miniaturized nuclear warhead.

The bottom line is that the U.S. and its allies will suffer enormous casualties and economic damage, China may find a pro-U.S. regime on its doorstep, and the North Korean regime will face annihilation.

Given these outcomes, “logic” says that war should be prevented. This would not be difficult to do. If North Korea verifiably stopped its weapons testing and engaged in some dialogue, the U.S. would meet the regime more than halfway with sanctions relief and some expanded trade and investment opportunities.

The problem is that the logic of war proceeds differently than the logic of optimization. It relies on imperfect assessments of the intentions and capabilities of an adversary in an existential situation that offers little time to react.

North Korea believes that the U.S. is bluffing based in part on the prior failures of the U.S. to back up “red line” declarations in Syria, and based on the horrendous damage that would be inflicted upon America’s key ally, South Korea.

North Korea also looks at regimes like Libya and Iraq that gave up nuclear weapons programs and were overthrown. It looks at regimes like Iran that did not give up nuclear weapons programs and were not overthrown. It concludes that in dealing with the U.S., the best path is not to give up your nuclear weapons programs. That’s not entirely irrational given the history of U.S. foreign policy over the past thirty years.

But, the U.S. is not bluffing. Trump is not Obama, he does not use rhetoric for show, he means what he says. Trump’s cabinet officials, generals and admirals also mean what they say. No flag officer wants to lose an American city like Los Angeles on his or her watch. They won’t take even a small chance of letting that happen.

The Trump administration will end the North Korean threat now before the stakes are raised to the nuclear level.

Despite the logic of diplomacy and negotiation, the war with North Korea is coming. That’s the logic of war.

Meanwhile, the stock market continues its run of new highs. There was a pullback over the course of Wednesday and Thursday, and volatility spiked. But nothing significant relative to the recent record run.

The stock market, which is deep into bubble territory, shows no sign yet of repricing based on a horrendous war that’s coming soon.

And of course stocks bounced back today after yesterday’s swoon, as they have typically done during this bull run.

But like I said earlier, “buying the dip” has been a winning strategy — until it isn’t.

Stocks are being driven higher by double-digit year-over-year gains in revenues and earnings and by the percentage of companies beating expectations. But, the expectations game is just that — a game.

Companies lower expectations and then routinely “beat” them to give a pop to the stock. Year-over-year comparisons are good, but that’s only because 2016 was a notably weak year for stocks.

What’s really driving stock prices are expectations of higher earnings year after year. This is the stuff of bubbles. These Wall Street extrapolations assume no war, no recession, no unexpected shocks, and no continued central bank tightening. All four of those assumptions may be wrong. It only takes one of these events to disrupt the rosy scenarios Wall Street analysts are peddling.

I hope I’m wrong, and there’s always a chance that peace may prevail. But all the current warnings and indications point to war.

You may not be able to control the logic of war or the illogic of bubbles, but you can control your own portfolios.

This may be the last opportunity to reduce stocks positions, increase cash allocations, buy gold (not more than 10% of your investible assets), and consider other hard assets such as land, museum quality collectibles, silver, and natural resources.

A few strategically placed bets in the form of select put options are another way to enhance returns while avoiding the deluge to come.

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Rick Cerone's picture

MOAR DEBT.............................

natashav's picture

Didn't Obama and Hillary have to borrow money to bomb Libya?

Wasn't it something like $1 Million?

If this is true, how in bloody hell is the USA going to war with anyone?

Everyone, including the rich, is not liquid.

Media can claim everything is great, but it's not.

That's why they want this war, but how do they pay for it?


DeathMerchant's picture

Mandate that all student loans are to be repaid immediately. Declare all family members  of any type, all friends and associates are liable for student debts. Put Koshkinen and Lerner in charge of debt collection.

Posa's picture

On Friday China made it very clear and explicit: It will defend NKor in the event of premptive US attack. End of story. It's not Piggy Boy the US faces... it's the People's Republic of China (and maybe their Russian ally)...

The story ends here. This is the Waterloo of the US Empire... the US has no further cards to play, especially since SKor wants no part of war, becasue Seoul will be largely demolished. The US is effectively squeezed out of Asia and there's not a damn thing the US can do... Except retreat in himiliation to the Northe American Homeland.

This is great news because it's a win for us not the US (Predator Class in NY and DC)... maybe now that Empire has failed we can start filling the potholes and reviving the domestic US economy and figure out how to pay my pension when it's time to collect.



OverTheHedge's picture

The card played in response is Monday's trade war as announced by Trump.

Posa's picture

How does that fix the Korea problem?

DeathMerchant's picture

Sorry but anyone not already drawing a pension of some sort is fucked forever.

Akdov Telmig's picture

Because Trump believes his own bullshit, that doesn't mean than he's not full of it.


Besides, he's totally inept in doing what he says, I will do this I will do that and at the end nothing is done, excepted opening his big mouth and bullshitting on Twitter.


He's just a professional bullshitter good at making controversies, I bet nothing meaningful will be done in his presidency term of 4 years, if he's not hopefully impeached before for mental incapacity.



scallywagrab's picture

So, by as you said, he says "I will do this, I will do that & in the end nothing is done". 


Answer me this, if that is something you don't like about him, I assume you also don't like that about any other politician(save but a handful) or president for the last say 30 years? 

scallywagrab's picture

So, by as you said, he says "I will do this, I will do that & in the end nothing is done". 


Answer me this, if that is something you don't like about him, I assume you also don't like that about any other politician(save but a handful) or president for the last say 30 years? 

unirealist's picture

China isn't going to risk nuclear annihilation to protect NK.

But they are in a tough spot. They agreed long ago to support NK if it ever got into a war.

Now they are saying they won't support NK if it starts a war, but will if NK is attacked. So they've already taken a big step back.

I don't envy the position they're in, but for Pete's sake, they got into that position by refusing for the last twenty years to put a stop to NK's nuclear program.

Honestly, I can live with Iran having nukes. But the f*ing North Koreans? Good God!

They're so out of touch with reality that they WILL start WWIII in another five years, seriously expecting to win it.

Somehow the US, Russia, and China have to sit down together and agree on a way to disarm them.




wide angle tree's picture

Nothing is going to happen.

soyungato's picture

Nothing is going to happen ? Trump is humiliating himself so he will start a trade war with China to save face. Price of everything will go up.

Joiningupthedots's picture

Can the author explain how you win the war started in 1953 when everything is destroyed on the Korean pennsula?

China will not permit any American proxy governemt and military on its border under any circumstances, it has already said as much. 

Theres this weird narrative that only North Korea will go when in reality everything of any note in the South will be detroyed too.

61% of American cruise missiles FAILED in Syria last time out because of ECWM and you think NK is not paying attention?

America does not have the man power to beat NK in a conventional war so if they go nuclear they most certainly will get destroyed in America proper.....its why Mattis has gone very very quiet on military options I would suggest?

The idea that America will let off bnuclear devices on the Koreaan peninsula and that China and Russia (who share a border with NK) will do nothing is assinine in the extreme.

Still the author thinks it will all happen "over there" and he will make a squeeze on his stocks and shares.

You couldnt make it up!


DeathMerchant's picture

"61% of American cruise missiles FAILED in Syria last time out because of ECWM and you think NK is not paying attention?" Unverified bullshit

apocalypticbrother's picture

Not sure why this guy is so sure usa is going to win. I am 54 years old and am unaware of usa ever winning any wars. 

Warren Platts's picture

Apocolyptic is right: China is already on record as saying they will help defend North Korea if Trump launches a pre-emptive strike:

Also, CHina and NK have a signed, mutual defense treaty, just like we have with NATO. Therefore, China is legally obligated to join the war on the side of North Korea. In addition, they already have 200,000 troops massed on the Yalu river. They could be at the front lines in a matter of days, if not hours. Also, if Chinese war game maneuvers are any indication, they are clearly training to fight the United States.

Meanwhile, we have about 28,000 soldiers, against 200,000 well-equipped Chinese troops. Thus, why should we expect to win a major conflict in Korea?

Remember that in 1950, China's GDP was 2% of the USA's, and yet we could not defeat them. Now China has a GDP greater than the USA's. 

The key would be the ability to maintain air superiority. But it may not be easy. China's air force would be based on the mainland. So what are we going to do, widen the war to the Chinese mainland? Probably not. But then there goes our air superiority.

Meanwhile, look at what China has to gain: it hates the THAAD missile defense system because its powerful radar would help US missile defense systems in case of a major nuclear exchange--it takes out the assuredness of MAD strategy. Also, the prospect of a nuclear armed South Korea is nothing good from China's perspective. The timing is not the best: it would be best to wait for 20 or 30 years when China's economy is twice the USA's before starting a major war, but the logic of war has it's own timetable. They no doubt figure they could win KWII. It would be the worst military defeat in US history. Then Korea will united all right, but under Chinese rule.

My advice to Trump would be to not feed the troll, while quietly selling nukes to South Korea. Only South Korean nukes can prevent a forcible unification of the penninsula. Also, Trump could use the NK issue as political cover to impose major trade sanctions on China, and possibly kill two birds with two stones. Trade deficit w/ China needs to get under control.

moneybots's picture

"Stocks are being driven higher by double-digit year-over-year gains in revenues and earnings and by the percentage of companies beating expectations."


Don't forget the billions and billions of stock buybacks and central bank direct/indirect buying. The Swiss national bank now owns some 84 billion in stocks.