Is North Korean Aggression the Start of Something Bigger?

May.27.10 | About: iShares MSCI (EWY)

North Korea must be running low on cash … again. Kim Jong-il is back playing war games to extort more money from the West to keep his nuclear arsenal under control.

Although the global economic crisis has remained relatively tame on the violence front, we should not forget most wars are preceded by economic desperation. Although no one knows North Korea’s real economic data, we can safely assume they have suffered worse than most in the economic crisis because they rely heavily on the economic health of very few allies — most of which have plenty of problems at home.

The recent sinking of a South Korean (NYSE: EWY) warship smells much like the demise of the Lusitania: a vessel goes down and a war begins. In that case, the US was sucked into World War I following the harsh double dip during the Great Depression. In this case, North Korea needs any means necessary to keep its people distracted as the economic crisis takes its toll.

Do not rule out the possibility that a bankrupt wingnut will start a war. We are living in classic conditions for social instability and the tribal expression of anger.