North Korea

American foreign policy theory divides into two main schools. Both have been useful in the past, but neither fits the world we have to deal with now. On one side are realists, who believe that nations try to ‘balance’, try to make sure that no one of their potential rivals becomes powerful enough to dominate them. Wars, in realist theories, occur when the relative capabilities of nations change, and serve to ratify such changes. In such a dangerous world, national security is a concern that trumps everything else, and weakness only encourages aggression. On the other side are Wilsonians, who are impressed by the historical evidence that democracies don’t fight democracies. They essentially agree with Immanuel Kant, who argued, in Perpetual Peace, that a world of liberal states would be a world free of war. Kant, however, went one step further, suggesting that such a world would eventually become a sort of global federation, as the long habit of peaceful collaboration caused mutual trust to harden into mutual obligation. Once this occurred, of course, the Wilsonian foreign policy model would no longer apply, because international war would cease to be the issue – the security problem would then revolve around the potential for civil wars within the federation.

With crude prices bid up so much, traders are left with a dilemma - to be in the crude oil trade, players basically either have to take delivery, or rollover.

Counterfeit money exploits trust by presenting a facsimile of authenticity. A high-quality counterfeit bill (for example, the $100 bills exported by North Korea) are facsimiles of authentic paper notes which then gain the trust of users. A counterfeit gold bar is a piece of lead coated with a layer of authentic gold. The mechanism is the same: a veneer of integrity tricks the buyer into trusting the validity of the entire bar. The U.S. has a deeply counterfeit economy.

• Madoff to NY magazine: Government a Ponzi scheme (WSJ) - Full NYMag interview here
• U.S. cables detail Saudi royal welfare program (Reuters)
• Saudi activists eye protests, wait for new cabinet (Reuters)
• Congress Inches Back From Budget Shutdown Abyss (Reuters)
• Beijing to Slow Growth (WSJ)
• Will 'Chindia' rule the world in 2050, or America after all? (Telegraph)
• Governors Scramble to Rein In Medicaid (WSJ)
• Irish poll winner eyes bail-out ‘manoeuvre’ (FT)
• Organized Labor: On the Way to Obsolescence? (RCM)
• Cash and Credit - Implications for the Financial Markets (Hussman Funds)

With violent protests springing up like mushrooms, following recent appearances in North Korea and Vietnam, and following last weekend's failed attempt at a Jasmine Revolution, China's authoritarian regime is about to be put to the supreme test. Bloomberg reports that "Chinese Premier Wen Jiabao pledged to punish abuse of power by officials and narrow the growing wealth gap as police blanketed Beijing and Shanghai to head off planned protests inspired by revolts in the Middle East." In other words, beatings (and disappearances) will continue until morale finally improves. As for the beatings, Bloomberg's Stephen Engle managed to experience one up close and personal: "Security officers also detained several foreign journalists, including
Stephen Engle, a reporter for Bloomberg Television. The Wall Street
Journal saw Mr. Engle being grabbed by several security officers, pushed
to the ground, dragged along by his leg, punched in the head and beaten
with a broom handle by a man dressed as street sweeper." Yes, China may be the most repressive regime when push comes to shove, but should 1+ billion angry and hungry Chinese decide there is nothing all that unique about China compared to Tunisia, Algeria, Egypt, Libya, Bahrain, Oman, Saudi Arabia, Ivory Coast, Vietnam, North Korea, Djibouti and countless more to come, not even the most convincing "blanketing" by police forces will do much of anything to prevent the only revolution that matters.

Throughout my 2010 article series "Extend & Pretend" and "Sultans of Swap" I stressed that we were rapidly moving from the Financial Crisis of 2008, through the Economic Fallout of 2009 -2010, towards a Political Crisis in 2011 -2012. We are now clearly beginning to see the early emergence of the final part of this continuum. From North Africa to Wisconsin all are fundamentally based on the single insidious underlying problem - excessive global debt and credit levels. It is now time to revisit our Tipping Points framework to see where this is leading. A framework that is clearly pointing to a global fiat currency failure and an emerging new world order which is detailed in our "2011 Thesis - Beggar-thy-Neighbor". Our Tipping Points which are outlined below are adjusted continuously based on daily news flow analysis. Through a proprietary 'Process of Abstraction' news is tracked and consolidated around these potentially critical flash points.

Even as silver performed some unprecedented fireworks today, plunging on what was a margin hike in... crude, the metal continues to trade just below its post-Hunt Brother highs. So for those who still have not decided whether or not to take the plunge and buy into the precious metal (which, granted, was selling at $8.80 three years ago, and has since nearly quadrupled in price), we present the following discussion between Jeff Clark of Casey Research and The Daily Crux, which answers "what you need to know about buying silver today." This comes a week after we first highlighted that the Canadian Mint has sold it last stock in silver and has demand for much more.

Freedom fighter Bernie Bernanke's has just carved another notch in his liberation bed post. With everyone expecting Saudi Arabia to fall next, or even South Korea, following days of consistently unreported bank runs, it is North Korea which takes tonight's gray swan award. From The Chosunilbo: "Hundreds of people clashed with security forces in the North Korean town of Sinuiju on the border with China on Friday, a source in the Stalinist country said Wednesday. The military was deployed to quell the demonstration, leaving some protesters wounded. The source said police officers cracking down on traders in a market in
Sinuiju after the public holidays marking leader Kim Jong-il's birthday
beat one of them unconscious. The victim's family protested and many
other traders went along to support them. When it looked as though other people might join the traders, security
agents and military troops moved in. Rumor has it that four or five
people were killed in the resulting clashes, but no details of civilian
casualties are known." So how much are those North Korea CDS again? And how much longer does China think it can suppress its own 1.3 billion-strong tsunami?

As we pointed out earlier, the upcoming week will be quiet on economic and market events. What it, however, will be heavy on is revolutions, riots and the good old ultraviolence. Below is a useful primer from Stratfor for what is becoming an increasingly more complex geopolitical chess game, for the time being confined in the Maghreb, but soon spreading all across the Muslim crescent and soon thereafter into East Asia.

• Mervyn King (the UK's Chairsatan) Faces Ticking Clock on Interest-Rate Increase as U.K. Inflation Soars (Bloomberg)
• Bernanke (our own Chairsatan) Warns Against Steep Budget Cuts (Reuters)
• Bernanke Makes Sure Fed Reminds Congress Deficit Bigger Than QE2 (Bloomberg)
• China Developers Move Beyond Shanghai, Beijing, Defy Curbs (Bloomberg)
• Was Weber Sacrificed for the Euro? (WSJ)
• Wall Street Justice Means Nobody Gets Pinched: Jonathan Weil (Bloomberg)
• Weber's Withdrawal Opens Up ECB Race as Debt Crisis Persists (Bloomberg)
• Credit Suisse Cuts Profitability Goal as Net Misses Estimates (Bloomberg)
• Now that Ron Paul actually has some power over the Fed, what is he going to do with it? (Slate)
• Asia Moves Up a Gear in Fighting Inflation (Reuters)
• Egyptian Party Pulls Out of Talks After Threat of Army Role (Bloomberg)

An Investment Pro thinks WWIII has Started and other musings from the final installment of the Roundtable

"Mr. Speaker, Mr. Vice President, Members of Congress, distinguished guests, and fellow Americans"...

The US and China as the two current real world powers, have a push and shove relationship. This does not mean that it is directly combative, but it does mean that these two nations are bumping into each other, on all of the world’s stages, especially of late.

Simon Black currently in Santiago, Chile, presents a quick introspective on the key events of 2010, before moving on to a few broad forecasts for 2011. We hope his predictive ability is better than that of one Byron Wien. The key among Simon's predictions is that very soon we may see the same kind of power vacuum that brought about the Thermidorian Reaction in that last major systemic overhaul. Of course, the fact that we still have to experience a an actual storming of the Bastille is a little perturbing. But everything in due course...

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