Month: September 2017

Via The Daily Bell

Gabriel Scheare began mining Bitcoin in 2013 and then moved into real estate development a year later by co-founding Fort Galt, a new start-up village for entrepreneurs. He lives in Valdivia, Chile, near the project build site.

Listen to the full audio here, or read below for the slightly abbreviated transcript.

So What is Fort Galt?

Fort Galt is a startup village for entrepreneurs. So it’s not that unlike other gated communities, or homeowner’s associations, except that it’s very intentional in its design, and who it’s catering to.

It sort of came to being when I met my business partners, Luke and Lourdes Crowley at an entrepreneurship boot camp called exosphere. And that was a three-month program where a whole bunch of people gathered together in Chile from all over the world with business ideas and basically just trying to figure out what they wanted to do with themselves.

Some people had some good ideas, some not so much, but it was this great sort of an incubator type environment where there was a whole lot of cross pollination going on because everyone was living in close quarters, working in close quarters so ideas flowed very freely…

And so we really loved this environment… but it was very limited time wise, after the three months everyone went back to their home countries and fell back into their old habits. A lot of the business ideas never panned out and people just kind of let things fall apart.

But we got to thinking, what if we could solve that shortcoming at the end of the pipeline there. What if we could provide housing options, some kind of residential option for this where people wouldn’t have to go home after three months, where they could stay and keep working as long as they needed to.

We eventually got together… and we started basically asking ourselves what would our perfect community look like? Where do we want to live? How can we incorporate this theme into some sort of a permanent living environment?

And that was essentially three years ago and it has been sort of this slow step by step process of figuring everything out from absolutely nothing to where we are right now. Which is this gorgeous coast property in Valdivia rainforest. And we are essentially ready to pour concrete now once the weather clears up.

Did you all have this same Atlas Shrugged idea? Are you all big fans of Ayn Rand, or all pretty libertarian?

We all kind of have that background in common. It’s not a prerequisite for people moving in though. A lot of the people that we met at exosphere were very much not libertarians in their speech in what they professed. But what we found was that if you expatriate from your home country and you’re an entrepreneur… and go your own way and carve out your own way and make your own life–you’re pretty libertarian.

…So we did meet some of those, and some of those types of people even ended up joining us in the end. It was kind of reassuring that way and we have sort of incorporated that lesson in our own marketing and design. We don’t try to make it sound like we are only appealing to hardcore Objectivists. If you’re responsible for your own outcomes, if you’re a self-motivated self-reliant type person then you’re most of the way there.

It sounds like it’s more for young entrepreneurs and a lot of people that move there would have to be more location independent, is that correct?

That was the idea, and we incorporated in the design of our first main residential building, a handful of these small entry level affordable rooms with those types of people in mind. But we also found that we were appealing to a lot of other types that we didn’t count on.

A lot of retirees that are looking for an interesting environment to live in and interesting people to work around and a lot of ex-military people for some reason. They kind of go through this phase where they kind start to reevaluate their life choices and start planning an exit strategy and we tend to pop up on their radar.

How do you feel about the military people, is there a little piece of you that’s like, oh good, now we have this tight knit community that can defend itself?

The more talent we have the better. I kind of adhere to this concept of keeping the community small enough where you can actually know everyone very well. That’s the context I grew up in, in a small farming community. You didn’t have very many neighbors but you made the effort to get to know them very well because you knew you would have to lean on them sometimes.

It was kind of anarchism in practice just by default because there were no cops around. There was this one summer where we had all these straw bales that caught fire and the whole farm could have burnt down but the neighbors saw the smoke and they all came and put the fire out. Not the fire department the neighbors. So we are carrying that philosophy into this context. We want basically an environment populated your ideal neighbors.

Could this be a curation space for investors, with the young entrepreneurs living alongside older experienced retirees?

Absolutely, and that is one of the things that attracted me to Chile in the first place. There was this other project that was promising a very similar environment where you would have the young nimble start-up kids co-mingling with the older retiree people who have more experience to share, could be valuable mentors, maybe some investors with capital to share… so yea we are definitely working that angle.

How much of a town do you think you’ll be able to make it?

I’m a big believer Dunbar’s number which says once you get over 100 people it gets really hard to actually know them. So somewhere near 100-150 people, I would think would be kinda the max.

What will happen if there is overwhelming demand for this? Would you start another next door? Or say tough luck?

We just have to listen to the market on that. If there is a waiting list of people that want to live in the same general location, then we have to find another property close by…

But for me, the long term plan is to replicate this all over the world, using the Freemason concept of having a lodge in each town so people can travel freely and work easily and integrate into new places as they are traveling. So eventually we can network all these locations together to be a sort of decentralized nation that’s not dependent on any one physical country.

The fact that it’s on the coast, is that more than aesthetic? Or is there something there?

Ha! You’re thinking ahead. You can’t really look at the beach and not envision building some kind of a port there. It doesn’t have to be anything enormous but some kind of a dock or something at some point will definitely be considered. We do have members that have boats and it would be convenient for them. And of course, we are all big fans of seasteading so we would love to participate in that…

I’ve heard you say in the past, the reason you’re channeling Ayn Rand is that [the inhabitants of Galt’s Gulch] weren’t just going off on their own, they were going to Galt’s Gulch to live amongst these other producers. How can you make sure the people moving here are that type of person? Is there a curation process? 

Yes, we do vet people before we let them join. normally that just involves getting to know them a bit through conversations. And we have a lot of people that like to come down and actually visit the site see it for themselves. We have had to turn a few people away but not very many…

Right now all the big decisions are made by the founding partners, just by default, because we are the ones that are actually here doing stuff. As things come together and people move in on site and the population blossoms it will be up to the members to decide whether or not they like our service…

So people will own their own lots?

Yes. If you look on the website there’s a map showing the lots and you can buy any of those right now. We aren’t actively pushing them yet because we decided to focus on marketing the main building first because that’s kinda the reason for people to be here.

I mean unless you just love living on the coast in a gorgeous rainforest, which I mean I would. But that’s not enough of a reason to really justify leaving your life behind and moving to Chile and taking a huge leap like that. But once the crown jewel is in place then we think that will serve as a sufficient magnet to really attract people to come and buy lots…

In the main building in order to avoid all the SEC regulations and crap like that, we came up with a clever system kind of based again on the Freemason model of a private club. There’s a lot of loopholes around rules and things like that there, so what it is you’re are buying a membership into the clubhouse.

So you are not buying property which the SEC would regulate. We don’t have to worry about our US clients or anything like that because they aren’t buying land they aren’t buying any kind of asset. They are buying a membership which entitles them to exclusive use of their room. And it’s transferable, they can pass it on to their heirs, they can sell it. In practice, it is as if they bought the property. But legally speaking it is just a club membership.

And dispute resolution?

The first step is just resolve your own problems, come on, we’re all frickin grown-ups, act like them. But if that fails people agree to a third party arbitrator…

It’s just sort of a case by case thing, but there are steps in our policy to handle these things…

We’re definitely not like that stereotypical homeowner’s association that runs around measuring blades of grass.

Who’s gonna build the roads?

Where we’re going, we don’t need roads. Seriously though, we do have these little paths throughout the village. How they want them built up, will be up to them, the members that is.

Right now they’re just tramped down dirt, they are fine for most cars. But if they want gravel they can have gravel if they want pavement that’s fine, if they want solid platinum, I guess that’s possible. It’s all comes down to how much do they want to pay for.

I once lived at a homeowners association in California that was built around of a golf course, and everyone resented that gold course because it was just a money pit. There was no avoiding having to pay for it so I definitely learned my lessons from that and we are not imposing costs on the members that they don’t want. It is just going to be up to them, how much service do they want, how much infrastructure do they want, and are willing to pay for.

What part of the project are you most focused on right now, where’s all your time and energy going?

… I started this new little project called the Crypt Academy which is essentially a one room schoolhouse. The idea being that we will offer free educational courses for the locals… to promote cryptocurrency use. Because here in South America it is still one of those crazy nerd things that doesn’t make any sense and is scary and stuff. We just need a physical interface to help people get comfortable to help people use it and try it.

The idea of the one room schoolhouse goes back to where I grew up. My grandparents went to one and that was very common back then where you’d have the older kids in school mixed in with the young kids so they could help them and then the young kids had fresh perspectives on things and they can help each other.

It’s just this melting pot of not just talent but also enthusiasm too because sometimes you can get burnt out. And sometimes the teacher needs help too like managing a bunch of kids is hard sometimes. We know this is a village where kids will be growing up so thinking ahead and having a facility like that in place will be useful. We can use it not just for putting on workshops but also for our own children to go to school in.

It almost sounds like this is an alternative to college?

Our experience at exosphere made [it] painfully clear. College and university or whatever is obsolete. That model is completely useless now, it looks like a joke. So we need to rethink this, and that doesn’t necessarily always mean making things more high tech more advances and weird.

Sometimes you can look to the past for inspiration too. And basically, with this one room school house that’s the point because we are teaching cutting edge scary tech stuff were balancing that out by doing it in a more comfortable old fashioned environment to help people feel comfortable through the process…

How can readers keep up with what you’re doing?

If you want to keep tabs on what we’re doing, we do have a mailing list for the newsletter at FortGalt.com.

[We’re] gearing up to do fundraising for the construction of crypt academy, so the fundraising will be going through September… and you can keep track of that at cryptacademy.com.

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After President Trump condemned North Korea’s “hostile and dangerous” actions this morning, hours after the rogue state’s 6th nuclear test, and according to the Kim regime first test of a hydrogen bomb, the press wanted to know one thing: will the US attack North Korea? “We’ll see,” Trump responded, leaving church when a press pooler shouted a question about if he plans to attack North Korea. Earlier, commenting on Twitter, Trump called the country “a rogue nation which has become a great threat and embarrassment to China, which is trying to help but with little success”, although that statement too failed to provide clarity into what the next tactical step could be.

As reported shortly after midnight ET, the latest North Korean provocation reinforced the danger facing America, Trump had said earlier in a series of tweets, adding that “talk of appeasement” is pointless. “They only understand one thing!” Trump wrote, without elaboration, as he prepared to meet later with his national security team. It was the first nuclear test since Trump took office in January.

The precise strength of the explosion, described by state-controlled media in North Korea as a hydrogen bomb, has yet to be determined. According to the AP, South Korea’s weather agency said the artificial earthquake caused by the explosion was five times to six times stronger than tremors generated by the North’s previous five such tests. The impact reportedly shook buildings in China and in Russia.

And while Trump decides to what the proper course of action is, his Secretary of State Rex Tillerson was busy calling counterparts in Asia, while Steven Mnuchin, said he was putting together proposed new sanctions for Trump to consider that would seek to cut off trade with North Korea, although as we said earlier, it’s unclear what kind of penalties might make a difference. Lassina Zerbo, head of the U.N. test ban treaty organization agreed, saying that sanctions already imposed against North Korea aren’t working.

Last month, Trump warned that the U.S. military was “locked and loaded, should North Korea act unwisely” and that the U.S. would unleash “fire and fury” on the North if it continued to threaten America. The bellicose words followed threats from North Korea to launch ballistic missiles toward the U.S. Pacific territory of Guam, intending to create “enveloping fire” near the military hub that’s home to U.S. bombers. So far, Kim has called Trump’s bluff every single time, without any retaliation besides just more jawboning by the US president, which considering a direct response by N. Korea to a US attack could result in millions of dead South Koreans, is probably not the worst outcome.

Meanwhile, as Trump lashed out at North Korea on twitter this morning, while China remains by far the North’s biggest trading partner, Trump appeared to be more critical of South Korean President Moon Jae-in, who has attempted to reach out to the North. To that point, the WSJ reported yesterday that the White House was weighing withdrawing from a five-year-old bilateral trade pact known as KORUS, with a decision set to come as soon as this coming week, according to people familiar with the matter

“South Korea is finding, as I have told them, that their talk of appeasement with North Korea will not work, they only understand one thing!” Trump said.

Shortly after noon ET, Trump underscored the threat of trade war involving both South Korea and China, when he tweeted “The United States is considering, in addition to other options, stopping all trade with any country doing business with North Korea.”

The United States is considering, in addition to other options, stopping all trade with any country doing business with North Korea.

— Donald J. Trump (@realDonaldTrump) September 3, 2017

He also said that he will be meeting “General Kelly, General Mattis and other military leaders at the White House to discuss North Korea. Thank you.”

I will be meeting General Kelly, General Mattis and other military leaders at the White House to discuss North Korea. Thank you.

— Donald J. Trump (@realDonaldTrump) September 3, 2017

Meanwhile, China’s Xinhua News Agency said President Xi Jinping and Vladimir Putin, meeting on the sidelines of a Beijing-led economic summit, agreed “to adhere to the goal of the denuclearization of the Korean Peninsula, have close communication and coordination and properly respond” to the test.

While leaders of superpowers were moving slowly, regional concerns were at breaking point: South Korea held a National Security Council meeting chaired by Moon. Officials in Seoul said Trump’s national security adviser, H.R. McMaster, spoke with his South Korean counterpart for 20 minutes about an hour after the detonation. Japan’s Prime Minister Shinzo Abe called the test “absolutely unacceptable.”

Nuclear tests are crucial to perfecting sophisticated technologies and to demonstrating to the world that claims of nuclear prowess are not merely a bluff. The North claimed the device it tested was a thermonuclear weapon, also known as a hydrogen bomb. That could be hard to independently confirm. It said the underground test site did not leak radioactive materials, which would make such a determination even harder.

At the same time, the simple power of the blast was convincing. Japan’s Defense Minister Itsunori Onodera said it might have been as powerful as 70 kilotons. North Korea’s previous largest was thought to be anywhere from 10 to 30 kilotons. “We cannot deny it was an H-bomb test,” Onodera said.

Even before this morning’s H-bomb test, the AP reported that Japan was debating whether to develop a limited pre-emptive strike capability and buy cruise missiles, ideas that were anathema in the pacifist country before the North Korea missile threat. With revisions to Japan’s defense plans underway, ruling party hawks are accelerating the moves, and some defense experts say Japan should at least consider them.

After being on the backburner in the ruling party for decades, a possibility of pre-emptive strike was formally proposed to Prime Minister Shinzo Abe by his party’s missile defense panel in March, prompting parliamentary debate, though somewhat lost steam as Abe apparently avoided the divisive topic after seeing support ratings for his scandal-laden government plunge.

 

“Should we possess pre-emptive strike capability?” liberal-leaning Mainichi newspaper asked the following day. “But isn’t it too reckless to jump to discuss a ‘get them before they get you’ approach?”

Following the latest, most powerful nuclear test, Japan’s resolve for a preemptive strike will only strengthen further.

Meanwhile, more is likely to come from North Korea.  Just before Sunday’s test, according to state media, Kim and the other senior leaders at the party presidium meeting discussed “detailed ways and measures for containing the U.S. and other hostile forces’ vicious moves for sanctions.” The photos released earlier showed Kim talking with his lieutenants as he observed a silver, peanut-shaped device that the state-run media said was designed to be mounted on the North’s “Hwasong-14” ICBM. The North claims the device was made domestically and has explosive power that can range from tens to hundreds of kilotons. For context, the bomb dropped on Hiroshima by the U.S. had a 15-kiloton yield.

Of course, the biggest concern to date is that not only are options to pressure Pyongyang limited, but the Kim regime seems to be growing more bold with every unanswered provocation. Further economic and trade sanctions, increased diplomatic pressure and boosting military maneuvers or shows of force would likely all be on the table. Which is why we expect that following today’s meeting between Trump and Kelly, General and “other military leaders”, the sequence of events involing US military intervention in North Korea will finally start to move.

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The Burning Platform's Jim Quinn notes that:

I have no idea if Major General Higginbotham actually penned this or not but it is a stark warning, one that I have maintained for years, that a civil war in North America (if it happens in the USA it will take Mexico and Canada along for the ride) will not be as cut and dry and as some folks would like.

 

There are no definable sides to our current predicament, no political organization to speak of, and as such a wide spread conflict would become chaos in short order. The continent would get very tribal very quickly. Political ideologues proceed with caution.

 

You won’t like what you are about to read.

Via Kunckledraggin.com,

“If you are paid $25.00 an hour to show up to a rally to “counter” the other party using physical force and violence, you are not a “counter protestor.” You are a mercenary.

There is no need for further debate on this. You were paid to attack someone you don’t know for reasons that you couldn’t care enough about to go there for free. You did your “job” and collected your check and your reimbursement of expenses. You’re a mercenary.

 

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The dynamics of the standoff between the US and North Korea have shifted dramatically in the past week.

First, the North started with an unexpectedly sharp provocation – launching a missile over the Japanese island of Hokkaido – before following that up with its sixth nuclear test. Also, judging by the size the earthquake detected in the country’s mountainous North on Sunday morning, North Korea may have been telling the truth when it said it conducted what it described as its first hydrogen bomb test.

And while the North bragged about the weapon’s “great destructive power” in a TV broadcast, what caught analysts’ attention was a mention of a different tactic: detonating  an H-bomb at high altitude to create an electromagnetic pulse that could knock out parts of the US electrical grid.

Here’s WSJ:

“North Korea’s threats against the U.S. now include a tactic long discussed by some experts: an electromagnetic pulse, or EMP, triggered by a nuclear weapon that would aim to shut down the U.S. electricity grid.

 

North Korea’s state news agency made a rare reference to the tactic in a Sunday morning release in which the country said it was able to load a hydrogen bomb onto a long-range missile. The bomb, North Korea said, ‘is a multifunctional thermonuclear nuke with great destructive power which can be detonated even at high altitudes for super-powerful EMP attack.’”

Unlike a conventional nuke, an EMP blast – think Oceans' 11 – is not directly lethal, and serves mostly to knock out key infrastructure (useful when robbing a casino).

However, it would probably lead to an unknown number of indirect deaths as hospitals and essential infrastructure lose power.

“The idea of an EMP attack is to detonate a nuclear weapon tens or hundreds of miles above the earth with the aim of knocking out power in much of the U.S. Unlike the U.S. atomic bombs dropped over Hiroshima and Nagasaki in 1945, such a weapon wouldn’t directly destroy buildings or kill people. Instead, electromagnetic waves from the nuclear explosion would generate pulses to overwhelm the electric grid and electronic devices in the same way a lightning surge can destroy equipment.”

In the worst possible scenario, regional power grids could be offline for months, potentially costing many deaths as people would eventually start running out of necessities like food and medicine. Lawmakers and the US military have been aware of the EMP threat for many years, according to WSJ. IN a 2008 report commissioned by Congress, the authors warned that an EMP attack would lead to “widespread and long-lasting disruption and damage to the critical infrastructures that underpin the fabric of US society.”

In a report published last month, the Hill noted that the North could choose to carry out an EMP attack on Japan or South Korea as a more politically acceptable act of aggression. Such an attack could help the North accomplish its three most-important political goals, the Hill said.

“North Korea has nuclear-armed missiles and satellites potentially capable of electromagnetic pulse (EMP) attack. EMP is considered by many the most politically acceptable use of a nuclear weapon, because the high-altitude detonation (above 30 kilometers) produces no blast, thermal, or radioactive fallout effects harmful to people.

 

EMP itself is harmless to people, destroying only electronics. But by destroying electric grids and other life-sustaining critical infrastructures, the indirect effects of EMP can kill far more people in the long-run than nuclear blasting a city. In this scenario, North Korea makes an EMP attack on Japan and South Korea to achieve its three most important foreign policy goals: reunification with South Korea, revenge upon Japan for World War II, and recognition of North Korea as a world power.”

Scientists first discovered a hydrogen bomb’s ancillary EMP capabilities after testing one in the Pacific in the early 1960s.

“When the U.S. tested a hydrogen bomb in the Pacific in 1962, it resulted in lights burning out in Honolulu, nearly 1,000 miles from the test site. Naturally occurring electromagnetic events on the sun can also disrupt power systems.

 

A 1989 blackout in Quebec that came days after powerful explosions on the sun expelled a cloud of charged particles that struck earth’s magnetic field.”

Some experts who spoke with WSJ said it would be impossible to guarantee success during an EMP attack, since the weapon would need to detonate with near perfect accuracy.

“Skeptics generally acknowledge that an EMP attack would be possible in theory, but they say the danger is exaggerated because it would be difficult for an enemy such as North Korea to calibrate the attack to deliver maximum damage to the U.S. electrical grid. If it a North Korean bomb exploded away from its target location, it might knock out only a few devices or parts of the grid.”

The North Korea said its hydrogen bomb had explosive power of tens of kilotons to hundreds of kilotons – so of course if it landed to close, or the attack was mishandled in other ways, what was meant to be an EMP attack would result in a nuclear strike. At least one expert said using an EMP attack would make little sense when the North could cause much more destruction with a nuclear ground attack.

“Others say that even if North Korea had the technical capability to deliver a damaging electromagnetic pulse, it wouldn’t make strategic sense to use it because Pyongyang could wreak more destruction with a traditional nuclear attack directed at a large city.

 

A rogue state would prefer a “spectacular and direct ground burst in preference to a unreliable and uncertain EMP strike. A weapon of mass destruction is preferable to a weapon of mass disruption,” wrote physicist Yousaf M. Butt in a 2010 analysis.”

Luckily, if US military authorities truly fear an attack, there are some long-term steps the US could take to minimize the effectiveness of an electromagnetic pulse attack. Defenses could be bolstered inexpensively by designing electrical-grid components to withstand sudden pulses, just as the grid already is protected against lightning strikes. The US could also build backup systems that could step in for the principal electrical grids in an emergency.

If the North’s latest nuclear test, conducted early Sunday, didn’t involve a hydrogen bomb, the weapon used was at least close to it according to US officials. It was the North’s first nuclear test since late last year, and also the first since tensions between Kim Jong Un and President Donald Trump began escalating shortly after his inauguration. China, Japan, South Korea and the US have already condemned the attack, with China and South Korea threatening to work with the Security Council to bring more onerous sanctions against the defiant North.

Meanwhile, President Donald Trump in a series of tweets hinted that he was frustrated with diplomatic measures, which he referred to as “appeasement.” We imagine there are more than a few generals whispering in his ear about the potential success rate of a surgical strike.

* * *

Finally, here is a repost from July 2014, in which hedge fund legend Paul Singer, head of Elliott Management, said that "there is one risk that stands way above the rest in terms of the scope of potential damage adjusted for the likelihood of occurrence" – an electromagnetic pulse (EMP).  Three years he may be proven correct.

From: "The "Most Significant Danger" According To Elliott's Paul Singer"

EMP: THE MOST SIGNIFICANT DANGER

 

While these pages are typically overflowing with scary or depressing scenarios, there is one risk that stands way above the rest in terms of the scope of potential damage adjusted for the likelihood of occurrence. Even nuclear war is a relatively localized issue, except in its most extreme form. And the threat from asteroids can (possibly) be mitigated.

 

The risks associated with electromagnetic pulse, or EMP, represent another story entirely. It can occur naturally, from solar storms that send “coronal mass ejections,” which are massive energetic bursts of solar wind, tens of millions of miles in a mere few hours. Or it can be artificial, produced by a high-altitude (at least 15 miles) explosion of relatively low-yield (even Hiroshima-strength) nuclear weapons.

 

Different initiators of EMP have different pulses and different effects. But the bottom line is that EMP fries electronic devices, including parts of electric grids. In 1859, a particularly strong solar disturbance (the “Carrington Event”) caused disruption to the nascent telegraph network. It happened again with similar disruptions in 1921, before our modern power grid came into existence. A NASA study concluded these events have typically occurred around once per century. A repeat of the Carrington Event today would cause a massive disruption to the electric grid, possibly shutting it down entirely for months or longer, with unimaginable consequences.

 

Only two years ago, the sun let loose with a Carrington-magnitude burst, but the position of the earth at the time prevented the burst from hitting it. The chances of additional events of such magnitude may be far greater than most people think.

 

The artificial version of EMP, a kind of nuclear attack, would require between one and three high-altitude nuclear explosions to create its effect across all of North America. It would not cause any blast or radiation damage, but such an attack would have consequences even more catastrophic than a severe solar storm. It could not only bring down the grid, but also lay down a very intense, very fast pulse across the continent, damaging or destroying electronic switches, devices, computers and transformers across America.

 

There is no way to stop a naturally occurring EMP, and nuclear proliferation, combined with advances in weapons delivery systems, make the artificial version a distinct possibility, so the dangers are very real.

 

What can be done about this risk? Critical elements of the power grid and essential electronic devices can be hardened. Spare parts can be stockpiled for other, less critical hardware. Procedures can be developed as part of emergency preparedness so that the relevant government agencies and emergency response NGOs are ready to respond quickly and effectively to an episode large or small.

 

Why are we writing about EMP? Because in any analysis of societal risk, EMP stands all by itself. Congressional committees are studying this problem, and federal legislation is laboriously working its way through the process. We think that raising people’s consciousness about what should be an effort by both parties to make the country (and the world) safer from this kind of event is a good thing to do.

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August is over, which means that Eric Peters, the CIO of One River Asset Management, is back to doing what he is so very good at: distilling the week’s events and latest financial and economic trends into pithy, one-paragraph aphorisms.  Without further ado, here is an anecdotal excerpt from his latest weekend notes.

* * *

Scary Movie

I love movies. Scary ones especially. Keep your happy endings, give me chainsaws. Meat hooks.

I’ll never forget ERM in 1992. That was my first real snuff flick as a Lehman prop trader. The Italians never stood a chance in the film, they never do. Show me an Italian who can resist a dark woodshed and I’ll show you a hero in a hockey mask.

At least the Swedes put up a fight in the flick. Their central bankers raised overnight rates to 500%. Want to make a grown nerd cry? Run that interest rate through his risk model. But of course, not a single propeller-head imagined such a monster.

Anyhow, my next scary movie was Orange County, 1994. The great bond massacre brought terrified traders to tears.

Mexico devalued too; Tequila Slammer. So many strings inextricably woven into that tangled tale.

These intricate plots build over years, unravel in months. Asian Flu was released in 1997, classic zombie apocalypse genre. Just when the virus seemed contained, along came a sequel; Russian Flu in 1998. A month later they released LTCM, a documentary about the dangers of mixing academics and money.

Wall Street is remaking that classic as we speak; a big budget Black Monday II. Revenge of the Sock Puppet was released in 2001, followed quickly by 9-11.

Then things went quiet for what seemed like forever. But 7yrs later Haunted House came out – scared the crap out of everyone, even hardened criminals flipping cribs from cellblocks.

European Debt Crisis was released in 2011, a real nail biter, until some Italian saved mankind with a printing press. It’s been happy endings ever since.

Chick flicks, corsets, period pieces. Utterly boring. But in my three decades of watching scary movies, on average there’s been a blockbuster surprise every three to four years. And it’s been six since 2011.

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Following remarks from the leaders of South Korea and Japan, President Donald Trump has responded to North Korea's latest nuclear test, emphasizing that South Korea's "talk of appeasement will not work," and that Kim Jong Un and his government "only understand one thing!" He added that the nuclear test is an embarassment…to China.

In both tone and substance, Trump's response echoed his tweet from last week when he said that the US's policy of paying the North "extortion money" wasn't working, and that "talking is not the answer" to the North's nuclear threat.

North Korea has conducted a major Nuclear Test. Their words and actions continue to be very hostile and dangerous to the United States…..

— Donald J. Trump (@realDonaldTrump) September 3, 2017

..North Korea is a rogue nation which has become a great threat and embarrassment to China, which is trying to help but with little success.

— Donald J. Trump (@realDonaldTrump) September 3, 2017

South Korea is finding, as I have told them, that their talk of appeasement with North Korea will not work, they only understand one thing!

— Donald J. Trump (@realDonaldTrump) September 3, 2017

Elsewhere, China's foreign ministry said that North Korea had conducted the nuclear test “with no regard to the general objections of the international community." It added that it "strongly condemns" the test and that China would be willing to work with the UN Security Council to pass even more restrictive sanctions.

“The Chinese government resolutely opposes and strongly condemns this,” the ministry said in a statement.

“China will work together with the international community to comprehensively and completely implement the relevant resolutions of the Security Council of the UN, unswervingly push forward the denuclearization of the peninsula, and unswervingly maintain the peace and stability of the peninsula,” it said.

China's foreign ministry also once again called for the de-nuclearization of the Korean Peninsula.

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Authored by James George Jatras via The Strategic Culture Foundation,

They say that most of the world’s real dangers arise not because of what people don’t know but because of what they do 'know' that just ain’t so.

As a case in point, consider three things about Korea that the bipartisan Washington establishment seems quite sure of but are far removed from reality:

Delusion 1: All options, including U.S. military force, are «on the table.»

– Everyone knows there are no military «options» the U.S. could use against North Korea that don’t result in disaster. The prospect that a «surgical strike» could «take out» (a muscular-sounding term much loved by laptop bombardiers) Pyongyang’s nuclear and missile capabilities is a fiction. Already impractical when considered against a country like Iran, no one believes a limited attack could eliminate North Korea’s ability to strike back, hard. At risk would be not only almost 30,000 U.S. troops in Korea but 25 million people in the Seoul metropolitan area, not to mention many more lives at risk in the rest of South Korea and perhaps Japan.

 

– Hence, any contemplated U.S. preemptive strike would have to be massive from the start, imposing a ghastly cost on North Koreans (do their lives count?) but still running the risk that anything less than total success would mean a devastating retaliation. That’s not even taking into account possible actions of other countries, notably China’s response to an American attack on their detestable buffer state.

Delusion 2: North Korea must be denuclearized.

– Whether anyone likes it or not, North Korea is a nuclear weapons state outside the Nuclear Non-Proliferation Treaty and will remain so. Kim Jong-un learned the lessons of Saddam Hussein and Muammar Gaddafi. Because Kim has weapons of mass destruction, especially nukes, he gets to stay alive and in power. If he gives them up, he can look forward to dancing the Tyburn jig or getting sodomized with a bayonet, then shot. That’s not a difficult choice.

Delusion 3: If the U.S. presses China hard enough, Beijing will solve the problem for us.

– There is no combination of U.S. sanctions, threats, or pressures that will make Beijing take steps that are fundamentally contrary to China’s vital national security interests. (Here, the «vital national security» of China means just that, not the way U.S. policymakers routinely abuse the term to mean anything they don’t like even if it has nothing to do with American security, much less with America’s survival.) Aside from speculation (which is all it is) that China could seek to engineer an internal coup to overthrow Kim in favor of a puppet administration, maintaining the current odious regime is Beijing’s only option if they don’t want to face the prospect of having on their border a reunited Korean peninsula under a government allied with Washington.

 

– After Moscow’s experience with the expansion of NATO following the 1990 reunification of Germany, why would Beijing take credibly any assurances from Washington (of which there is no indication anyway) not to expand into a vacuum created by a collapse of North Korea? Quite to the contrary, it has been suggested that if China refuses to deal with the North Korea problem on Washington’s behalf, then the U.S. would do it on its terms, presenting Beijing (in the description of former U.S. ambassador to the United Nations John Bolton) with «regime collapse, huge refugee flows and U.S. flags flying along the Yalu River.» Adds Bolton, «China can do it the easier way or the harder way: It’s their choice. Time is growing short.» If under such a scenario U.S. forces end up on China’s border, suggests Bolton, they wouldn’t be leaving anytime soon. Don’t be so sure. In 1950, the last time American forces were on the Yalu River, they weren’t there very long when hundreds of thousands of Chinese soldiers crossed into Korea. Keep in mind that happened when China didn’t have nuclear weapons but the U.S. did.

The seemingly weekly rise and fall of the decibel level of bellicose rhetoric coming out of Washington and Pyongyang obscures the realities behind these three delusions. Little change can be expected from Pyongyang, whose policy at least has the virtue of simplicity: «if you do anything bad to us, we’ll do something really, really bad to you.»

So then, what are the prospects Washington could jump off the hamster wheel and come up with something besides threats and sanctions? The omens are not auspicious. Just before he left the White House, Steve Bannon violated the taboo surrounding Delusion 1: «Until somebody solves the part of the equation that shows me that ten million people in Seoul don't die in the first 30 minutes from conventional weapons, I don't know what you're talking about, there's no military solution here, they got us.» Then he was gone.

But let’s be optimistic. There have been reports of direct «back channel» contacts between North Korea and the U.S. at the United Nations in New York. Even Bolton suggests that some kind of accommodation could be made to China in the form of a pullback of U.S. forces down to the south, near Pusan, so as to be still «available for rapid deployment across Asia.» (Certainly, that’s one idea. Here’s a better one: how about getting us out of Korea entirely and not having Americans available for deployment across Asia?)

The definitive clarification should have been the Beijing-based Global Times editorial of August 10, 2017 («Reckless game over the Korean Peninsula runs risk of real war»), universally seen as reflecting the position of the Chinese government:

«China should also make clear that if North Korea launches missiles that threaten U.S. soil first and the U.S. retaliates, China will stay neutral. If the U.S. and South Korea carry out strikes and try to overthrow the North Korean regime and change the political pattern of the Korean Peninsula, China will prevent them from doing so».

That means that if Kim attacks the U.S., he’s on his own. If we attack Kim, we’re at war with China. In the latter case, while Russia would not likely directly join the fray we can be sure Moscow would provide China total support short of belligerency. Put mildly, this would not be in the American interest.

There is one, and only one overriding priority that should now guide U.S. policy on Korea. It’s not regime change in North Korea – despite that regime’s loathsomeness – or even the wellbeing of South Korea or Japan. It’s avoiding Kim’s developing a missile system capable of delivering a nuclear weapon to the United States. How close North Korea might be to such a capability is the subject of wildly conflicting estimations. (Regarding the American lives hung out on the DMZ, there’s a simple solution to ensuring their safety – get them the hell out of there.)

But what about South Korea and Japan? Our «alliances» with them are a fiction. The U.S. guarantees their security but other than cooperating on the defense of their own territory they do nothing to safeguard ours, nor can they. The U.S. derives no benefit in continuing to make ourselves a target on account of a place that’s more than five thousand miles from the American mainland.

It’s time that «America First!» meant something. As a start, Washington could take seriously Beijing’s proposal for a double-freeze. On the one hand, Pyongyang would suspend its nuclear and missile programs, in particular halting tests of weapons with potential intercontinental range. Washington and Seoul would suspend joint military exercises, including practicing so-called «decapitation strikes« aimed at North Korea’s leadership.

If protecting our own territory and people is American officials’ top priority, and not, as they implausibly claim, «regime change» in North Korea, it’s hard to see why a double-freeze would not be a sensible first step. It would be largely up to China to see that the North Koreans complied with their part of the deal. If they did, perhaps it could lead towards a long-overdue settlement of this Cold War-era standoff and, in time, a reunited, neutral Korea. If not, all bets are off – but we’d be hardly worse off than we are now.

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India's embattled Prime Minister Narendra Modi faced a double whammy of abuse this week as his nation's economic growth collapsed to its weakest since Q1 2014 and India's Central Bank released a report on Modi's extraordinary "demonitization" plan last year showing that 99 per cent of the high denomination banknotes cancelled last year were deposited or exchanged for new currency, crushing Modi's lie that his contentious 'war on cash' would wipe out huge amounts of so-called 'black money'.

When Modi announced in November that Rs1,000 ($16) and Rs500 notes would no longer be legal tender, he suggested that corrupt officials, businessmen and criminals — popularly believed to hoard large amounts of illicit cash — would be stuck with “worthless pieces of paper”. At the time, government officials had suggested that as much as one-third of India’s outstanding currency would be purged from the economy – as the wealthy abandoned or destroyed it, rather than admit to their hoardings – reducing central bank liabilities and creating a government windfall.

Since he unleashed his cunning plan, India's GDP growth has slowed dramatically.

After India's Composite PMI collapsed, India's Q2 GDP growth slowed to 5.7% – its weakest since Q2 2014…

 

And now, as The FT reports, the Reserve Bank of India’s annual report on Wednesday suggested that most holders of the old currency managed to dispose of it, estimating that banned notes worth Rs15.28tn ($239bn) were returned to the bank. That amounts to 99 per cent of the Rs15.44tn of the old high-value notes that were in circulation when Mr Modi made his announcement, according to the finance ministry.

The government’s critics were quick to seize on the RBI’s announcement as evidence of the policy’s failure.

“99 per cent notes legally exchanged! Was demonetisation a scheme designed to convert black money into white?” former finance minister P Chidambaram tweeted.

 

Rahul Gandhi, de facto leader of the opposition Congress party, tweeted: “A colossal failure which cost innocent lives and ruined the economy. Will the PM own up?”

The bank’s figures are a political embarrassment to Mr Modi, who had appealed to the nation to endure the disruption and hardship to punish the rich and corrupt, and deprive them of their ill-gotten gains.

Many lower income Indians hard hit hard by cash shortages supported the demonetisation policy because they believed the rich were suffering more.

It appears they were suckered!

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