December 31, 2007: South Korea has a new president, former head of Hyundai corporation Lee Myung Bak. He's a conservative and wants to take a harder line on North Korea. Meanwhile, the situation up north gets more chaotic. The northern bureaucracy has become obsessed with the rapid growth of the market economy. Faced with economic collapse, the northern officials allowed markets to open up all over the country. These have become wildly successful, but are out of control. Illegal (smuggled), as well as legal goods are offered. Police sent to clean up markets are often bribed to just pretend to do their work. The northern government has now discovered that the corruption extends to the most sensitive areas of the defense establishment. Everyone, it seems, wants in on the action. The Chinese warned the North Koreans that this would happen, but the North Koreans believed they were different. They weren't, and now the disciplined security force that has maintained control for over half a century is being compromised by bribes and imported luxuries.

Meanwhile, the northerners are refusing to completely dismantle their Yongbyon nuclear reactor. They insist on leaving some of the structure intact, and will not surrender unused nuclear fuel. This sort of double dealing is so typical of the North Koreans, and even the South Koreans are tired of it. In response, South Korea is increasing its defense spending nine percent. In the north, the military continues to fall apart from lack of money.