L: So, Doug, North Korea shelled South Korea – do you think that's the sound of an approaching black swan we hear?
Doug: It could be, but I doubt North Korea wants a real war, and South Korea absolutely wants to avoid one. Of course, North Korea's government is a hereditary monarchy, run by the thoroughly degraded Kim family – which is a bit confusing, in that everybody in Korea is either a Kim, a Park, or a Lee. Who knows what's going on in the abnormal psychology of Kim Jong-Il, or whoever is really running the place? It's perverse. North Korea is already a wasteland, so a war would do them relatively less harm; in a way they have nothing to lose. South Korea is a G20 economy, however, so even if they win a shooting match in short order, they still lose, in terms of the damage they would suffer in the process.
From a realpolitik point of view, it makes sense for the North to occasionally kill a few South Koreans, make threatening noises, and keep the "us vs. them" rhetoric hot. It provides an excuse for their extraordinarily low standard of living, and a reason for having a police state. They use nationalism and patriotism very effectively to prop up their pathetic regime. In that regard, they are like most governments, just more extreme. But I consider the chances of an actual war to be slim.
It was interesting to see gold shoot up the day the Koreas traded artillery shells. Coincidentally, it was just after the EU's announcement that all is well and everyone can go back to spending as usual. I don't think it's likely that the Koreas will go for all-out war and push the teetering global economy over the edge. But it's possible, because we're dealing with certifiable lunatics. It's more likely the EU itself will provide a black swan event. The bankruptcy of the euro, and then the EU, was always inevitable. It may now be imminent as well.