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Dow Jones Industrial Average (.DJI): North Korea and the Fear of Total Destruction

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Days after warning that it couldn’t assure diplomats’ safety in the event of war, the news of the day is that North Korea is preparing for a missile test on April 10. Another day, another act set to raise the stakes in a standoff that heated up with surprising ferocity across the past month.

Dow Jones Industrial Average

The stakes on the Korean peninsula are enormous. North Korea has a reported 13,000 artillery pieces at its disposal, the majority of which are close to the thin demilitarized zone that separates the two countries. While South Korea’s capital of Seoul may not be “flattened” within the first 30 minutes of conflict, as past reports have concluded, the scale of destruction to a modern global metropolis would be unlike anything most have witnessed in their lifetimes if a full-scale war broke out.

How unique and dangerous of a situation is this? Imagine a 30-year-old despot sitting across a small 2-mile-wide zone in White Plains N.Y., ready to shell Midtown and move more than a million troops south to attempt occupying the remainder of the Tri-State area, and you essentially have the situation playing out in Korea.

The recent elevated bluster from the North is commonly dismissed as showmanship. North Korean leader Kim Jong-un is still a new “Supreme Leader” of the country and the youngest head of state in the world. The thought is that his saber-rattling builds credibility with a military establishment that’s one of the few functioning establishments in the country.

Every few years, tensions rise on the Korean peninsula, such as in late 2010, when the two countries briefly traded artillery fire, only to settle back. The stakes of war are too high, and even Kim Jong-un and his father didn’t want to risk a full-fledged war and the total destruction it would cause to the Korean peninsula.

Yet in a world that’s recently been obsessed with “financial weapons of mass destruction” that led to the financial crisis of 2008, it’s important to remember that we live in a world with real weapons of mass destruction. The financial crisis of 2008 came about because financial models deeply underestimated the risk inherent in their construction. In hindsight, many of the risks seemed obvious; of course insuring hundreds of billions in poorly constructed home mortgages for pennies on the dollar was riskier than believed!

So far, world markets have largely ignored the situation playing out in Korea. We’ve been there, done that. The Dow Jones Industrial Average (INDEXDJX:.DJI) is still up more than 11% on the year. Yet you can’t help wondering if the risks in Korea are being miscalculated. Would it be such a stretch of the imagination that in five years the common refrain was “of course a 30-year-old unelected ruler of an impoverished country was likely to act out a bit too strongly and start a war”?

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