One can't look at a photograph of Kim Jong Un and not be impressed by how young he looks. Here's a lad who was raised on the rhetoric of his father and grandfather, who has a strained relationship with his own military (he had one general executed by mortar fire for being insufficiently enthusiastic about his ascension to power). One wonders if he has a realistic appreciation of the limits of his military and their capabilities. Is there a general who is able to talk to him and explain the situation? I kind of doubt it.
It's clear that he has no clue about how comical his sabre rattling looks to the outside world. Usually this kind of rhetoric is a pretext for demands for additional material support, but China reports that Un isn't being mollified by their offers. The only other explanation I can think of for his behavior is that it's the result of some sort of internal convulsion.
The more important thing is that North Korea's military has a degree of understanding of its limited capacities. That limit, in turn, will make it difficult for Kim Jong Un to easily push North Korea from its path of provocation to all-out war. Its bark of propaganda may be loud, but it very likely won't go beyond shelling or smaller-scale attacks for the time being.
As for Kim Jong Un, I have little reason to believe he does not view North Korea as a major power. To do less would be to abandon the "truth" of what Kim Il-Sung and Kim Jong-il constructed. To acknowledge or accept any limitations would be to cast doubt on their "immortal" achievements. Those "achievements" are Juche (self-sufficiency) and Songun (a powerful military-centered society). The former explains North Korea's willingness, even in the face of starvation from time to time, to maintain its isolation. The latter explains its unwillingness to abandon the path of nuclear arms, even when offered enormously generous incentives that would leave its people potentially dramatically better off than they are today.
The longer-term danger is that the mix of Juche and Songun is unsustainable. Under Juche, North Korea cannot do more than provide for the basic needs of its citizens, even as the gap between its living standards and those of its neighbors continue to widen. Under the latter, North Korea gains an increasing capacity to inflict devastating harm on its neighbors and gains psychological confidence in its power to prevail. Today, were the U.S. to refuse to supply any food to North Korea, North Korea would be more likely to take the path of least resistance and moderate its conduct. In other words, the U.S. still possess leverage to make diplomacy effective.
In the future, such a move could make North Korea more willing to take larger military risks in retaliation, hence the bargaining power that might exist today to deter North Korea's bad conduct or to pursue effective diplomacy would erode. At that point, there would also be greater danger that North Korea could decide to roll the proverbial dice to "break out" of its current predicament, perhaps coercing its neighbors to meet its demands with the willingness and ability to retaliate at a scale much larger than its past provocations if they don't. The size of its nuclear arsenal and performance improvement in its missiles might be critical determinants of that path.
Finally, one should not expect Kim Jong Un to embrace political reform that would lead to his regime's possibly losing its position of leadership. Aside from a military coup (very unlikely at present), the regime would use force to maintain its power. Moreover, the idea of its being absorbed into South Korea as had been the case with East Germay's being absorbed into then West Germany is also out of the question. Kim Jong Un does not view North Korea as a junior partner to such a unification. He would likely insist that South Korea become part of the North, not the other way around, even as the South's population, economy, and wealth vastly exceed the North's.
All said, once the noise of the North's loud rhetoric, harsh threats, and occasional provocations is set aside, North Korea remains on a status quo path. It continues to choose the path of self-isolation. It continues to pursue its nuclear weapons program. No changes are likely anytime soon. At the same time, a large-scale attack on South Korea or American military bases in the region remain unlikely.
