NORTH KOREA – Spectre of the Cold War

 

Missile
Missile on Parade (scmp.com)

North Korea – Spectre of the Cold War
 Comments

Justice Michael Kirby addressed the Sydney Institute on the 21st June dealing with North Korea’s human rights record including comment on the case of Mr O F Warmbier. The ensuing discussion, while relevant to the specific issue, was unable to articulate a solution to the current geopolitical situation.

The overarching problem is the nature of the North Korean regime and the nuclear threat it poses. The Cold War between the Warsaw Pact and NATO (1945-90) did not erupt into a nuclear holocaust because NATO maintained an around-the-clock airborne nuclear armed vigil. It was a case of mutual deterrence . If the Soviet Union had released ICBMs, major Russian cities would have been annihilated by incoming NATO weapons.

Today a comparable situation is emerging should North Korea direct missiles towards American interests or South Korea it would probably be neutralised by airborne and submarine-based ballistic missiles.

America is in the difficult situation should a definite immediate threat become manifest. There would be a retaliation that would have to, simultaneously, destroy the armaments along the ‘demilitarised zone’ and identifiable missile launch sites. The urgent problem is how to prevent North Korea progressing to perfecting its delivery system. To expect China to accomplish this is to misunderstand the geopolitical situation. Although China supports the United Nations sanctions on North Korea, it does not push too hard  due to concern over regime instability that could precipitate millions of refugees crossing the border into China. Furthermore, North Korea’s  nuclear ambitions are partially diverting America from China’s increasing hegemony in the East and South China Seas. A wild card into this situation is that America might reach a clandestine agreement with China on the 9 Dash Line in return for neutralising North Korea’s nuclear delivery threat. This arrangement might be considered in conjunction with negotiating a more balanced trading relationship that would boost American export industries.

Lessons from the 1962 Cuban missile crisis could be useful. China, as a proxy Russia,  might convince North Korea, as a proxy Cuba, to dismantle its nuclear capability under supervision, in return for development funds and a guarantee of national security. A sweetener for China might be that America would withdraw its B52 nuclear bombers from the region. Decisions would also involve Japan. North Korea is no Cuba but a ‘defuse’ mechanism might lie in this logic.

Missiles (smh.com)
Surface to Air Missiles. (smh.com)

A frontal attack poses an unacceptable threat for America. To bring North Korea to nuclear impotence would require a simultaneously stepped military assault:

  • stealth bombers must destroy anti-aircraft missile systems and command centres;
  • the virtually instantaneous destruction of thousands of artillery pieces along the DMZ trained on Seoul and nearby cities harbouring some 24 million souls;
  • the  massing of an invasion fleet that could not be hidden from China or North Korea causing the latter to consider a pre-emptive strike.
Artillery (netnews.vn)
Massed Artillery (netnews.vn)

There may be members of the International Community that have hoped for a modified French Revolution (1789) or a Bolshevik Revolution (1917) or preferably a Soviet implosion (1991). However, these alternatives may fade in the light of new relationships being developed in East Asia.

The President of South Korea, Moon Jae-in, favours engagement with North Korea which could morph into a rapprochement between Pyongyang and Seoul. In addition there are deepening trading ties between China and South Korea. Should closer ties develop between the three nations there may be pressure on America to reduce its forces in South Korea. The Kim dynasty is only interested in its own survival not in the well being of the North Korean people. Ultimately, to ensure a safe haven, the current ruling elite might be accepted in China or be ensconced in an enclave in North Korea. Pure conjecture!!

Should the three East Asian nations form a closer association, then America might need to rethink its ‘Pivot to Asia’ policy and southern members of the ANZUS Alliance may have to review their relationship with East Asian nations.

JOHN HILL                                                                                                                                    Current Affairs Flash Points                                                                                                  towardsthefinalhour.com                                                                                                         lurgashall@westnet.com.au

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TIMELINES & FAULTLINES June 2017 Pt 2

 

Book Cover
TANAMI DESERT, CENTRAL AUSTRALIA. SUNSET, 1988

This autobiography chronicles history, painful politics and social issues in the aftermath of imploding Empires and the rise of Failing States, it is about the life of a mining geologist  living and working in far away places as events swirled around him through the 20th century and into the 21st century. In non-retirement the author ran a cattle property in the Upper Hunter, New South Wales. He now lives on the coast north of Sydney.

Cattle Muster
CATTLE MUSTER AND WORKING STOCK DOG, LURGASHALL, NSW.                                                                                                                                                                                                                                                                                                                                                                               

Cattle dogs are an essential requirement for the cattle industry. Most cattle are amenable to mustering but frequently some animals require more robust treatment to drive them into a fresh paddock or the mustering yards. Despite their size steers can move with great speed and ferocity.

YOUNG BUCKS
YOUNG BUCKS FIGHTING OVER FEMALE ON FRONT LAWN, HOMESTEAD.

This was no ritual fighting, it would continue for a long time, the biting and kicking with clawed feet created bleeding injuries. At intervals the kangaroos would turn back to back to lick wounds then in a trice it would be on again. Ultimately one , bleeding and limping, would hop away while the victor would sidle up to a quietly eating doe nearby.

TIMELINES & FAULTLINES  is available from Amazon and UK book shops. It is available as a Kindle. TIMELINES & FAULTLINES is published by Austin Macauley, London..

John Hill                                                                                                                                     Current Affairs Flash Points                                                                                                 towardsthefinalhour.com                                                                                                        lurgashall@westnet.com.au

AUSTRALIAN EXPORTS & 2017 BUDGET June 2017 Pt 1

 

Mercury
Mercury – God of Commerce and Financial Gain (Walkers 541482)


Preamble
“Exports and Education” should be the Australian Government’s budget mantra, not “Jobs and Growth” or “Fairness, Opportunity and Security”. Neither defines the Australian problem as does “Education and Exports”.

Export income is the key to Australia’s future prosperity and the control of its annual deficit. The problem is Australia does not produce enough income to meet its expenses. Australia’s national debt as at April 2017 now stands at $552 billion (RBA) and the Reserve Bank of Australia must keep interest rates down in order to minimise interest repayments and to promote economic activity. It is not enough to promote jobs without putting the emphasis on export income which will create a strong balance of trade to reduce the monthly trading deficit. Unless this happens, there will be a slow devaluation of the currency which will only assist the export industry if it does not rely on overseas inputs. Strong exports are the key to Australia’s future.

Australia’s problem is well illustrated in the population density map of this island continent. The virtually unpopulated inland produced 60% in 2014 of Australia’s export income derived from natural resources and farm produce (beef and wheat). Another 9% was derived from education and tourism. The remaining 31% came from financial services, agriculture, chemicals, pharmaceuticals and specialised engineering products.

Australian Population
Australian Population Distribution (ABS) 1Dot = 1000 People.

 

Australian Exports
Australia’s top goods and services exports (DFAT 2014) are set out below:

AUSTRALIA”S TOP GOODS AND SERVICES EXPORTS (DFAT 2014)   TABLE !

EXPORTS$A billionPercent of Value
Minerals, Oil, Gas15246
Beef, Wheat145
Education, Tourism319
19760
TOTAL EXPORTS326100
OTHER EXPORTS12940

Natural resources are still the economic pillar but will have to be replaced if Australia is not to become a Chinese quarry to be mothballed at will. Agricultural products will become more important but will be unable to fill the void should natural resource exports decline. Unfortunately educational exports may be held back due to budget restraints placed on universities, the unfavourable Davos report and the declining OECD education ratings. (See May Blog – Education)

Currently, significant export growth can only come from non-labour intensive industries such as specialised engineering, medical advances, pharmaceuticals, chemicals, food products and legal services. The financial services sector will face increasing competition from Singapore and Hong Kong.

The ABS 2016-17 Budget Figures for Australia define a problem: within the expenses are costs for health – $71 billion, social security – $158 billion,  that is $229 billion which is 55% of Government revenue. In the long term this is unsustainable, clearly export income is a priority. The Gratten Institute (CEO, John Daley, April 2013) has concluded that Australia will face a decade of budget deficits,  adding to this problem the proposed corporate tax cuts could exacerbate this problem if the American experience is considered – see below.

TABLE 2 THE ABS 2016 – 17 BUDGET SUMMARY

Budget Item$ billion
Revenue416
Expenses450
Deficit(34)
Capital Investment3
Final Deficit(37)

In assessing Australia’s long term export potential, two factors will ensure interest rates will remain low due to a continuing sluggish economy and the continuing  annual deficits which will put Australia’s credit rating at risk. These factors are the explosion in public and private debt and the Government debt to GDP ratio and its relevance to Standard and Poor’s ratings – see below.


National Financial Problem
Australia’s looming problem is the inexorable rise of the Public (Government) and Private. debt, as far back as 2007 the RBA warned of this dangerous situation  when debt was only $58 billion. As of April 2017 this figure has risen to $552 billion while Private debt stands at $2.7 trillion and both rising, (RBA and Debt Clock).

Australian Debt
The Rise of National and Private Debt as a Percent of GDP (AFR 12 May 2015) Red – National Debt         Black – Private Debt    ( AFR, 12 May 2015)

Interest payments on Government debt will rise from $17.6 billion in 2016-17 to over $20 billion on a projected debt of $659 billion by 2020 (The Australian, MYEFO 20 December 2016). The continuing low interest rate (1.5%) and the sluggish economy are not conducive to generating a strong export-led economy. The opinion emanating from Union Bank of Switzerland is that increasing debt and continuing budget deficits might place further pressure on Australia’s AAA credit rating. Should there be a downgrade there would be a serious rise in annual interest payments. The figure below illustrates Australia’s vulnerability to a credit rating adjustment leading up to 2020.

AAAShould Australia Really be a AAA Credit?     ( AFR 12 May, 2016)
 S & P  AA                               AAA       AAA                                           ???


A Snapshot of Exports Past
Data on Australia’s top ten trading is revealing – there is imbalance and emerging concerns.

 TABLE 3 AUSTRALIA’S TOP TEN TRADING PARTNERS (DFAT-Business Insider, 8 August 2014)

COUNTRYEXPORTSEXPORT VALUEIMPORT VALUETRADING BALANCE
ChinaIron Ore, Coal, Gold1024953
JapanIron Ore, Coal, Beef502129
United StatesBeef, Aircraft/Space Parts, Alcohol1539(24)
South KoreaIron Ore, Coal, Petroleum251015
SingaporePetroleum, Gold917(8)
New ZealandComputer Parts, Vehicles, Pharmaceuticals1111_
BritainCoal, Gold, Lead812(4)
ThailandGold, Petroleum, Aluminium814(6)
MalaysiaPetroleum, Copper, Nickel710(3)
GermanyGold, Oil Seed, Fruit711(4)
TOTALS24219848

There are two concerns. Firstly, there is obviously a disproportionate reliance on coal and iron ore for export income. There will be a slow global decline in coal usage as alternative energy sources come on stream. With iron ore there are vast new iron ore deposits being opened up in Africa and South America. Regarding iron ore deposits in Brazil, it is concerning that the Chinese government has indicated it is increasing production from this source in order to reduce Australia’s near monopoly on iron ore supply. Secondly, the Australian services sector representing 49% of export income, employs 80% of the work force. By implication, natural resources and agriculture which produce 51% of export income employs only 20% of the work force.  (See Table below). If Australia is to prosper these statistics must change. It is well documented that the “trickle down” effect does not apply to nations blessed but ultimately cursed with natural resources.

Australia’s reliance on natural resource and farm product (DFAT, 2014) is illustrated below:

TABLE 4  AUSTRALIA”S NATURAL RESOURCES EXPORT IMBALANCE (DFAT 2014) (Repeat of Table 1)

EXPORT CATEGORY $ BillionEXPORTS PERCENT
Minerals, Oil, Gas15246
Beef, Wheat145
Education, Services319
TOTAL19760
TOTAL EXPORTS326
OTHER EXPORTS12940

Future Exports
The next decade is slated to be one of immense growth opportunities for Australian export industries which are food manufacture, oil and gas extraction, education, tourism and legal services promoting south-east Asian industrialisation.  With a growing Asian middle class around 750 million, annual growth rate of these industries will be baby foods – 2.9%, dairy/processed foods – 2.1%, education – 3.1%. (NAB-IBIS World 13 November 2013)

The above projected growth rates are significant taken in conjunction with the extent of Chinese investment and obviously ongoing acquisitions of Australian assets. Examples are – the dairy,  wine, beef and power industries. (See Chinese Foreign Investment, May Blog, 2016) It should now be clearer why Darwin port is currently controlled by Chinese interests. Darwin will become an important periphoral to the Chinese One Belt One Road expansion policy.

If Australia is to increase export income and provide secure power for its export industries, it will have to take a more hard-nosed approach towards the  oil, coal and gas potential of this continent. One of Australia’s problems is the rising under-employment and slowly falling standards of living among the citizens, not the political elite. Queensland is desperate for coal development and jobs in the Galilee Basin; South Australia would benefit from oil exploration in the Bight (abcnews.com 16 November 2016); New South Wales, Victoria and Western Australia would no longer be facing a power crisis if shale gas production was encouraged.  When only a few hundred jobs may be created in any part of the country becomes newsworthy, one wonders how thousands of jobs and billions in export income can be foregone by lack of firm Government policy. The Government is desperate to encourage “Jobs and Growth” and yet projects are stalled or delayed despite stringent safeguards.

Postamble                                                                                                                    Australia has been blessed with the curse of natural resources. The past is now stalling our future. Global studies have proved that economies with abundant natural resources tend to industrialise less rapidly than natural resource-scarce economies (NBER Working Paper 5398, 1995). For Australia to materially generate nation wide export growth, OECD education ratings must be significantly improved, the Davos findings on STEM expertise must be addressed and university funding must be increased to permit export directed research.

Exports
Australian Exports, the National Objective (Exports-shipping-trade.jpg)

While the 2016-17 Budget does promote export growth, there appears little specific short term incentive that encourages exports. Long term corporate tax reduction, existing trade deals and promotion assistance are peripherals to the core problem of education improvement, university funding and innovation. Concerning corporate tax reduction, both President Regan and Bush reduced corporate tax rate to stimulate the American economy, the result was devastating budget deficits. President Clinton raised taxes, created jobs and reduced the deficit. Has the Government considered this vignette? (The Conversation, 13 May 2017)


Postscript                                                                                                                         
This month much has been made of Australia’s recession-free growth during the past two decades by the Treasurer. Looking behind this soothing statement there should be concern not euphoria. The construction industry did indeed inflate the GDP, however, it did not contribute to export income unless there was massive foreign investment. The image below illustrates Australia’s dangerous reliance  on mineral exports over the past twelve years. Currently the value of mineral exports is decreasing as China’s demand weakens and this will reinforce the  inexorable slow decline in Australian living standards, this will continue unless alternative exports can be generated. The Treasurer’s statement obscures this real unpalatable truth but is in keeping with my September 2016 article ‘The Australian Economy – Stupid’.

       AUSTRALIA’S MAJOR EXPORTS  1997 -2009
Key:  Mineral Resources,  Rural,  Manufacturing

Commodity Exports
Australia’s major commodity export earnings 1997 – 2009 (abate.gov.au)

“The latest resource boom which commenced in 2003 has already doubled Australia’s terms of trade and is slated to go higher due to oil and gas exports. The growth in mineral commodity exports since 2003 has been phenomenal. Iron ore increased from $5.3 billion to $34 billion (2009) while coal (steaming and metallurgical) increased from $10.9 billion to $34.7 billion (2009). This cannot continue.

On the future of coal – “Some 41% (2009) of global electricity is generated using coal and this proportion is continuing to increase. The trend is towards an increasing use of coal, despite climate change concerns, and the transition away from coal may take decades.”(M Roarty, Resources sector and its contribution to the nation. Parliament of Australia, 23 September, 2010)

Australia has to throw off the curse of relying on natural resources and encourage specialised manufacturing, rural production, university research and education export income otherwise Australia’s standard of living will continue to decline. With inflation at 1.5%, wage growth at 1.9% and a sluggish economy at 2.4 % growth, the May budget may do little to lift Australia out of Government’s current fiscal morass.

Last Word                                                                                                                                             Professor Greg Austin, Centre for Cyber Research, Australian Defence Academy in a radio interview commented that over the past twenty years the Government has been “fostering a culture of incompetence” in relation to training in computing skills and cyber security. The current budget arrangement to implement restrictive policies on the 457 Skilled Visa program will add to the dearth of Australian STEM expertise. This policy does reinforce the Davos findings on Australia’s ability to benefit from automation and artificial intelligence developments. All this does lead back to a budget that does not adequately address poor OECD education ratings and a continued reliance on natural resource exports. (Background Briefing, ABC RN, 11June 2017)                                                                                                                                                                                                                                                                                                                                                          

John Hill                                                                                                                                     Current Affairs Flash Points                                                                                                   towardsthefinalhour.com                                                                                        lurgashall@westnet.com.au