The big foreign policy news overnight is that the other Clinton (Bill) had foreign policy success for the Obama administration.
After meeting with the supreme leader Kim Jong Il, our former President brought home the two reporters who were being held in North Korea. Euna Lee and Laura Ling from Current TV had been sentenced to 12 years of hard labor after being captured inside the secretive regime. Authorities in NK told them that if Bill Clinton came to the country, they would be allowed to leave. The Obama administration apparently offered Al Gore instead, but was turned down according to WaPo. I wonder if Gore felt guilty about the reporters predicament as he is one of the founders of current TV.
This is clearly a big photo-op for Kim Jong Il and the NK media reported that Clinton delivered a "expressed words of sincere apology to Kim Jong Il for the hostile acts committed by the two American journalists" and also conveyed a message from President Obama about the need to improve relations between the two countries." (Slate)
While the Obama administration denies this, the fact Clinton was allowed to go signals a major shift in foreign policy by the US towards the rogue regime. It could be laying the groundwork for good relations during a power transfer from Kim Jung-Il to his son which may happen sooner than most think.
It's this transitional period that will be extremely dangerous and may see NK become more belligerent with missile launches and fishing boat seizures. Internally, North Korea could implode and their nuclear material may be at risk. An incident would garner world-wide attention and a response from either China or the US. China's biggest concern would be for a mass of North Koreans coming into their country as refugees. Japan and South Korea's biggest concern would be for a missile to be launched towards them.
While I was at the Pacific Economic Conference in Vladivostok, Russia, attendees were very concerned over the developments in North Korea. Everyone was worried about what would happen to Russian oil and natural gas exports should North Korea explode.
North Korea is inherently unstable. During a power transition, it will be even worse and more difficult to predict the outcome.
Markets should have a strong risk off reaction with equities sold, bonds bought, and US dollar bought.
Watch for it.