Currently the Korean peninsula is in play much the same way Cuba was during the Kennedy administration known as “The Cuban Missile Crisis.” The overall situation and its possible consequences for missteps are eerily similar.

Missiles have been moved onto the peninsula in what can only be described as “outrage” via not only N. Korea, but also China. Whether or not one agrees with the move (along with the stationing of war ships off the Korean coast) as to send a message to Pyongyang to cease all provocation via its nuclear ambitions is irrelevant.

The real player (and the one to pay attention too) in this standoff is China. And how they go about resolving this issue at its doorstep. Both internally, as well as externally.

Make no mistake: China is not just juggling one possible conflict, it is also currently fighting another within its own borders. For China is simultaneously on the precipice of an another possible disaster. i.e., An outright monetary disaster of its own making which needs to be resolved with the same immediacy as this external one.

I’m of the opinion this kerfuffle with N. Korea may be the catalyst which drives China to either embark on an outright kinetic posture against the West to resolve. (e.g., If no one backs down or worse) Or – will be the inflection point as to allow the monetary fallout within its financial markets to begin in earnest. Crippling the entire global economy in ways not fully understood (or envisioned) by many, especially “The West”, in what may be akin to a “First Strike” monetary (rather than kinetic) action.

Aside from the obvious “trigger” events that could arise as I stated in the above. (e.g., N. Korea) There are a few other events which when taken as a collection, rather, than just their stand alone value, portend for far further cracking in the facade that is China.

Since we’re in the middle of a possible armed standoff the analogy of “Did China dodge a bullet?” seems fitting when juxtaposed to the recent tightening into weakness launched in earnest via the Federal Reserve.

As strange as anything resembling “normal” monetary effects have been, e.g., Central banks buying equities. One of the latest has a few scratching their heads, and it’s this: As the Fed. hiked not just once, but twice in 90 days, and, is signaling even more along with a reduction of its balance sheet – the $Dollar has weakened.

There are far too many factors to list as to what might be the catalyst. Yet, what is clear (and the only thing that matters currently) is that this manifestation has subsequently given China some form of “borrowed time” when it comes to the Yuan. For if the $Dollar had strengthened as it has during such cycles? The Yuan would be in a world of depreciating hurt.

Back in October I penned the following, “Why All The Yawning Over The Yuan?” And in it I made the following point. To wit:

“Now some will think “Maybe there’s no concern because the politburo has it under control?” It’s a fair response, but there’s a problem inherent with the answer, or answers.

First: If the Chinese are doing it in a “controlled” type manner, it reeks of “currency manipulation” tactics for others (think U.S. presidential politics as of today) to latch onto and build support, as well as strengthen a case for retaliation. i.e., placing tariffs, etc, etc.

If you think about it from the Chinese perspective: that would mean you were openly, and intentionally goading as to fuel some version of a trade, or currency war. When you come at it using that thought process; it just doesn’t make sense. Both from a tactical standpoint, as well as political. Hence lies what maybe even a more troubling scenario. e.g., They’ve lost control.

The only other reason more troubling than the first – is the second. For it is here where things become quite precarious, as I’ve stated many times: “The currency markets are where you must keep your eyes and ears affixed. It’s where the real games are played and won.” And losing control of one’s currency has implications for all others, both warranted, as well as unintended. And it seems this latter scenario might be more on point than the former.”

Where does the relationship between the Yuan and the $Dollar now stand? One would think with such a sell off currently taking place within the $Dollar market that the cross-rate should be in a much more manageable area for the politburo than before all things being equal, correct? Hint: It’s not. Again, to wit:

As one can see by the chart above we are currently hovering at the 6.900 range. That’s important not just for its “spitting distance” away from the all important psychological 7.000 level, but rather, how (and why) it’s there at all.

All things being equal as the $Dollar had strengthened it put pressure on the Yuan. That pressure was/is wreaking havoc within China exacerbating the already near unmanageable capital flight taking place which shows no sign of letting up as evidenced by the chart above. For the higher the cross-rate ascends – the greater the issues weigh on the Chinese politburo via capital flight and more. And which lies-the-rub…

For if the index is rising as the $Dollar is weakening? (as it is currently) That means the Yuan is losing value far faster than it was only months ago. And that’s a very, very, very (did I say very?) big problem for the current monetary status quo. Not to mention the global economy in general.

The current financial underpinnings within the Chinese economy are once again under pressure in ways very few understand. With that said all one needs to watch as to perceive significant clues into the health of its underpinnings is the price stability in commodities. For much of China’s internal, and interwoven financial constructs for collateral are based on them. And one of the main players of that is iron ore. And guess what? Hint: Prices are/have collapsed at a precarious pace.

The easiest way to categorize the relationship of commodity prices and the financial underpinnings within China is this: Commodities are the collateral and pricing foundation to much of China’s financial obligations – as real estate values are to MBS and all their counterparts. Yes, much of China’s financial problems are now with real estate, but what all that real estate was built and financed on was? Hint: Commodity collateralization. (Think CDS/MBS times a factor of 1000, if not more.)

Now you have some idea of just how massive this problem is.

Just remember what a sudden (like in 2007/08) real estate value collapse can do (or did) to an economy, and you have the same scenario in earnest via commodity prices currently happening in China, where the full effects (let alone realizations) of such have yet to even be calculated, never-mind felt.

Add to this the current enactment of steel tariffs placed only weeks ago by the U.S and you know what you also get? Hint: An even more ticked-off Beijing. Again: All this in conjunction as some U.S. steel warships hold fast off the Korean coast threatening to possibly launch a first strike upon its next door neighbor and so-called Sino-influenced “underling.”

If the politburo decides that there is no other way (and easier timing for a scapegoat) than now as to suddenly devalue the currency and put a world of financial hurt squarely on the West (and the U.S. in-particular) while simultaneously using all the turmoil as to hasten the pace (and possibly secure the position for more SDR influence) the table for such a move has probably never been set so neatly, so perfectly, and so probable as it is today.

Waiting to see if the $Dollar reverses and brings the hurt on in ways that are out of the politburo’s control or sphere of influence will not be seen as “prudent” by anyone within the Chinese authority. “Waiting” from their viewpoint might be the last thing they can consider, especially since “warships” and “missiles” are now needed to be factored into the immediacy for monetary decision-making.

They may decide to act, and act sooner, rather than later.

No matter what happens in France or N.Korea.