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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

November 23, 2010 at 10:20 AM

Danger signs in the heart of Asia’s economy

Today’s artillery duel between North and South Korea involved some 175 shells, according to the New York Times. That’s no mere border incident, and a reminder that the world’s atomic-armed crazy aunt lives in the attic atop one of the epicenters of the global economy. Surely no rational nation would escalate its grievances into a world war — but is North Korea rational? Its masters have refused to join Asia’s dynamic prosperity, letting their people starve in the service of an ideology.

And China. Surely this rising world power will restrain North Korea, which depends on Beijing as its only ally. Yet China has been reluctant to accept the responsibilities that come with its growing power. And great powers, even with huge economic stakes to lose, can miscalculate, often when small, hot-headed players are also involved (See Germany, Austria-Hungary, Russia and Serbia, 1914).

So who knows what might happen, especially with North Korea apparently rapidly improving its nuclear technology. This is probably just another North Korea feint, hoping to be bribed to stop, the son coming to power. That’s what the experts say. And we know the experts are always right.

Another Asia concern is China’s economy, which is so hot inflation is affecting food prices — the last thing a communist leadership wants to see. So Beijing is trying to tamp down prices, raise inflation, safely deflate an asset bubble. I hope they can pull it off (“soft landing,” in the words used during the Greenspan revels). I also keep thinking about America after World War I, a nation that had risen to great power but didn’t want to accept its international responsibilities. We were the world’s leading creditor and biggest manufacturer. And when we stumbled with an overheated, speculative bubble in the late 1920s, followed by central bank tightening, the result was worldwide depression. Now things are even more complicated.

Today’s Econ Haiku:

J. Crew, preppy deal

Profits for the hedge fund boyz

Job cuts in the bag

Comments | More in China economy and business, International economy, Macro/Big picture

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