The watch list kept here is not exhaustive and will change frequently as condition changes.
Middle east conflict is near its final explosion (Jan. 11, 2007)
There are signs that the conflict in the middle east is going from a stalemate to an explosion, spreading spectacular financial shock waves around the world. American public has lost patience with the Iraq war and wants a clear strategy to end the war. President Bush has proposed a troop surge in Iraq at the same time beefing up military presence in The Gulf that is apparently targeting Iran. No one believes seriously that a troop surge in Iraq as proposed will make any difference, and the bloody stalemate in Iraq will continue. Then US Government will be forced to abandon Iraq under the public pressure. US allies in Arab world are apprehensive about US withdrwal from Iraq; they fear that Shiah dominated Iran is going to take over the whole middle east with all its oil reserves. Such a situation apparently is also not acceptable to US. There are strong conservative voices within US urging the attacks on Iran and Syria. They argue that once Iran and Syria are knocked out, all in middle east will be peace and US domination, just as they argued for the attack on Saddam Hussein. Bush administration seems to be going the way as those conservative thinkers. If the attack on Iran becomes the reality, the outcome for the middle east, for the oil and for the whole globalization process is a compelte unknown at best, and a total disaster at worst.
North Korea (May 28, 2005)
The North Korea nuclear weapon situation is turning rapidly from bad to worse, and probably to worst very soon. With the North's intention to test a bomb, and the very recent ratcheting-up the military pressure from America, the region is now like a powder keg. The long term China vs. Japan-America geopolitics as discussed in Article 6 should be kept in mind as the background. The chance of North Korea to reach a nuclear disarmament through negotiation is very low. The possibility that Bush administration will idly stand by and watch North Korea to test a bomb or to accumulate more and more nuclear weapons is also very low. Thus it is likely that some kind of military accident will flare up, for example, US bombing North Korea's nuclear facilities. In that event North Korea will surely not back down, and a new Korean war will erupt. One thing can be sure is that China is not going to allow North Korea been wiped out, so it will continue to support it by all means available. Considering the attitude of North Korea, it is also very likely that it will use its nuclear weapons on Japan, or American bases in Japan. Thus the full engagement of Japan-America versus North Korea, then the full and open military conflict between Japan-America and China will follow. The consequence of such a conflict on the global economy can be explicitly described as a "depression", even not an all out nuclear holocaust.
Mideast Situation (January 23, 2005)
A note about this whole section is in order. Financial service industry makes profits during bull markets and lose money in bear markets. Thus financial market participants are natural optimists. Rosy senarios are mostly already built in the markets. That is why when some thing good happens markets usually show no interests at all, except one or two day stock market rallies and then continue the trend set before those rosy events. Only when the worst case senario hits, the markets will be shocked and thus influence the course of the economic developement. That is why we only talk about the worst case senarios in this column, when we feel that the possibility of such worst case senarios can not be ignored but the markets seem not discounting those worst case possibilities.
The reason that we pay so much attention to the Mideast is, of course, oil, oil and oil. Iraq election is going to be held and Shiite majority is going to take over the government. However, that will not end the Sunnite insurgency and the bloody battle will continue. The majority Shiite, at least the moderate ones, will want US troops to stay to fight with the Sunnite insurgents, and so are Kurds at the north. Thus a bloody stalemate will develope at the time being. Ironically the never-ending tragic conflict between Israel and Palestinians is temporarily removed from the top focus of the region since that conflict does not involve oil directly.
Then what is going to shake that bloody stalemate? It is the Iranian nuclear weapon developement. Unlike Iraq that the former regime had no ability to develope WMD by itself, there is no reason to believe that Iran can not develope nuclear weapons by itself or with some help from outside. Before the Iraq war, Iran had probably believed that Iraq was developing nuclear weapons just as many others did, so they had the incentive to push for the nuclear weapons. After the war, they probably want the weapons even more to retard the possible attack from US and Israel. Thus it is just the matter of time that Iran will posses nuclear weapons. What are USA and Israel going to do? No one is talking about an suicidal ground invasion of Iran. All the talks are about air strikes, either by Israel or by USA. Optimists hope that by knocking out the weapons of Iran, the current regime of Iran will just crumble and democracy will flower in Mideast. If the air strike is done by Israel, then there is no reason to believe such rosy senario is possible. Those optimists must be contemplating air strike by USA. The worst case senario is that air strike is performed, but the current Iranian regime does not crumble, then what is going to happen? Certaily Iran does not have the millitary ability to retaliate against US and Israel. What they can do is to stir up trouble among the fellow Shiite population in Iraq. What are Iraq Shiite going to do? If Iranian friendly Shiite get the upper hand, they will ask US troops to leave, Iraq will fall into a full scale civil war with Shiite controling the southern oil fields and Sunnite and Kurds fighting for the northern oil fields. Other Sunnite countries like Turkey and Syria will probably at the side of Iraq Sunnite. The Mideast will then be divided into two camps, Sunnite and Shiite with Iranian influence increased but not decreased. USA probably need to retreat to Kuwait and Saudi Arabia as its front line with the attacks from terrorists continuing. If such a worst case senario developes, US Mideast strategy must be deemed to be a total failure, and the oil market will be upset, creating an unpreditable consequence to the global economy.
The Elections (Aug. 3, 2004)
The outcome of US presidential election in November will not going to change the globalization scheme in any significant way, thus will not effect the global nor the US economic movement. The gross picture of the globalization is that USA borrows from Pacific rim countries in the form of huge trade deficits, and then spend the borrowed sum to sustain its high consumption. The arguments about whether give tax cuts to rich, the middle class or the poor, and whether or not to run federal government budget deficits, are only the fight about who should spend that borrowed sum. It is just a storm within a cup.
The Iraq election scheduled to be held in January of 2005 is a little more significant than the general election of USA. That election is pushed by moderate shiite of Iraq. If the election is postponed by any excuse, the militant faction of shiite that is demanding the immediate withdraw of US troops may very well gain influence and will throw the already uncertain situation of Iraq into more chaos. If the election is held and shiite forms a legitimate majority government, are they going to demand the swift withdraw of US troops and then fight a civil war with sunis of Iraq that probably will ally with the outside terrorists? How about the influence of Iran in the event of a shiite majority government? All those outcomes will shape the condition of middleeast and may cause ripple effects on the price of oil. However, in long term, no matter who controls middleast oil, as long as they want to harness the rich associated with the oil, they must sell the oil to the world market. Thus it is the supply and demand of the world market that will determine the oil price, not a single cartel or a handful of politicians. Many economic anlysts have a tendency to blame the oild price and geopolitical events when their own economic projection fails to match the reality. Studying the crises of 1970's, there are strong indications that the prices of nonoil crude materials had moved ahead of the price of oil, indicating that a general infltion spiral had actually preceeded the oild crises, not the other way around as some may want to claim.
Global Ramification of Taiwan's Election Crisis (April 2, 2004)
Taiwan's election crisis is not just a local issue of a young democracy, but has the potential to lead to USA-China confrontation. Communist Chian has expressed that under the following 2 conditions, it will resolve to use force to unify Taiwan with the mainland China:
1. If Taiwan declares independence unilaterally.
2. If Taiwan falls into turmoil and chaos.
The opposition (called pan-blue camp) seems to be determined to prolong the confrontation with repeated mass demonstrations. So far the government side (called pan-green camp) is refrained to stage its own massive counter rally. However, if the pan-blue camp succeeds in staging repeated mass ralleys, pan-green camp probably will be forced to rally its own massive supporters in order to erase the distorted image that Taiwan's public is overwhelmingly against the government and sides with the pan-blue camp. If these two hostile mass demonstrations occure, it is highly likely that two masses will collide and create unforseen chaos and turmoil, satisfying condition No.2 laid down by Communist China. If China is forced to use military force to invade Taiwan to quell the unrest in Taiwan, USA probably will not sit idle to see its long time friend, Taiwan, be swallowed by Communist Chian. Thus a dangerous USA-China confrontation will occure and will shock the world economy into a sudden dislocation. That is why we need to monitor the situation in Taiwan carefully.