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baja
03-15-2011, 09:32 AM
Likely Economic Effects of the Japanese Earthquake
Living in Chile, I experienced the February 2010 earthquake. That puppy measured 8.8 on the Richter scale at its epicenter. In Santiago, the earthquake registered about an 8.2—and I was on a 15th floor when it happened. Believe me, it was quite the experience. I wrote a first person account of the earthquake here.


Friday, March 11, 2011.
I bring this up in relation to the Sendai earthquake that rocked Japan this past Friday: It was an 8.9 (Richter), and wrought tremendous devastation. As I write, there is as yet no clear accounting as to lives lost, though it is likely in the tens of thousands. At least two nuclear reactor sites have been severely damaged; the ***ushima reactor #1 is close to melting down, and #3 isn’t in much better shape. Hundreds of thousands of people have been evacuated from the area, and further tens of thousands of people are homeless, following the tsunami. And millions of people are without electricity or running water.

This is a tragedy for the Japanese people—the worst crisis since the end of the Second World War.

To those of us untouched by the direct effects of this tragedy, we should thank our lucky stars. But rather than gawk at the lurid images coming through the media, it would be smart for us at this time to analyze the likely effects of this disaster on the rest of the world’s economy.

Many pundits are hawking headlines along the lines of “The World’s Most Indebted Country Will Have To Go Into More Debt!”—but this isn’t necessarily true. Or in fact not necessarily a problem.

Over the next few weeks, Japanese companies will liquidate foreign holdings, in order to repatriate capital so as to pay for reconstruction. That is, they’ll be selling foreign assets and buying yens. So the yen—if left unchecked—could conceivably rise over the next month or two, a rise that could potentially be substantial, and severely disruptive.

So the BOJ won’t leave it unchecked: To combat the effects of capital repatriation on the yen—and to provide short term liquidity to the Japanese government—the Bank of Japan has already announced a liquidity window for Japanese banks. There’s no question that this “massive liquidity” they are looking to inject will be expanded to Japanese companies looking to dump foreign assets and spend money on reconstruction. The BOJ invented Quantitative Easing, after all.

Therefore, yen appreciation is a non-issue at this time, and for the immediate short-term. The BOJ will make sure to keep the currency in check.

Insurance, however, will be an issue. The experience with the Chilean earthquake was, the big insurance companies—especially the big international ones—didn’t lay off enough of their liability; that is, they didn’t fully reinsure themselves. In Chile, the last major earthquake had been in 1985: Obviously, international insurance companies calculated that they could maximize profits by minimizing the cost of reinsurance, gambling that this year, The Big One wouldn’t hit. The strategy worked like a charm—until February 2010, when The Big One finally did hit.

I don’t know the Japanese situation in detail, but I wouldn’t be surprised if something similar happened there: The international insurance firms didn’t lay off enough of their earthquake/disaster liability on reinsurers. Local insurers will have been wise enough to lay off that exposure—but the international ones will get caught with their pants down. So although all insurers with Japanese exposure will take a hit, the local Japanese firms will probably rebound quicker.

It could happen that indeed, some of the big international insurers can’t cover their Japanese liabilities.

Energy in Japan will be an issue moving forward. Japan gets 29% of its electricity from nuclear power, about a quarter from liquid natural gas, about a fifth from coal, an eighth from hydroelectric and the last eighth from oil and other sources.

There are eighteen nuclear power plants in Japan, comprising 55 reactors. The earthquake will severely curtail the amount of electricity delivered by these nuclear power plants; already there are rolling blackouts in areas which were not affected by the earthquake. Apart from the ***ushima disaster and the power plants that were knocked offline by the quake, the Japanese are probably checking all the other plants in the country, to make sure that they weren’t damaged by the quake. Therefore, as the nuclear component of the energy pie diminishes because the reactors are shut down, there will be increased price pressure on liquid natural gas and coal, and to a lesser extent oil. That’s in the immediate short-term.

Read more here;

http://gonzalolira.blogspot.com/2011/03/likely-economic-effects-of-japanese.html?source=patrick.net#navbar-iframe

baja
03-15-2011, 09:35 AM
This will continue into the mid-term (12 to 30 months)—it’ll take at least that long for the nuclear power component of Japan’s energy supply to get back to pre-quake levels. And that’s assuming, of course, that nuclear energy ever makes it back to the Japanese table at all.

In the long term, the ***ushima disaster will no doubt force a severe re-evaluation of nuclear power—not only in Japan, but in India and China and well. Both of these countries have tremendous long-term energy needs—but neither wants to deal with the mess of a nuclear accident like the Japanese are being forced to deal.

Nuclear technology was making a strong comeback, especially with oil prices surging and the instability in the Middle East and North Africa adding to production uncertainty. But now? Irrespective of what we think about nuclear energy—and I’m of two minds about it, recognizing both the need for cheap energy, but the mess that nuclear can become—if there is a meltdown of one of the reactors in Japan, that’s curtains for nuclear energy for a generation. The thinking will be, If the Japanese couldn’t prevent a disaster, then no one can.

Even if there isn’t an out-and-out disaster, and somehow the Japanese technicians manage to bring the various reactors to heel, no country will be able to carry out a new nuclear plant build without a huge public outcry. So even in the best case scenario, nuclear is dead.

Therefore, nuclear power technology providers—General Electric and so on—will take a hit in their business. Possibly even a mortal one.

What about the overall effect on the Japanese people and economy?

Again, drawing on the Chilean experience: Following the February 2010 Great Quake, there was a burst of economic activity. Certainly construction—especially in roadway and infrastructure repairs due to the damage of the quake—got a bump up.

But it wasn’t just particular industries that got a bump up—it was the mood of the country overall. This can’t be quantified, but to deny it is to be deliberately dense: During the weeks and months after the February 2010 earthquake, there was a sense of elation in the general populace. Chile boomed, in the months after the earthquake. How much did it boom? Well, in nominal dollar terms, the Chilean GDP grew from $166 billion in 2009 to $199 billion in 2010: A 20% bump. There were other things that pushed up the dollar-denominated GDP in 2010: Copper prices rose precipitously, and the new center-right, pro-business administration of Sebastián Piñera took over, attracting a lot of foreign capital.

But still: The bouyant mood of the country following the earthquake had a lot to do with that 20% bump up in nominal GDP. I would expect something similar to happen in Japan.

So there’ll be a big spurt in spending: Repairing the damage will cost maybe half a trillion dollars. Question: Will this necessary spending spree break Japan’s historically stubborn deflation?

I don’t know, actually, but I think it might. The BOJ is doing what ought to be done, liquidity-wise. And if the repair costs are indeed $500 billion—about 12.5% of GDP—then that kind of expenditure in such a short time will be like an eight-ball of cocaine to the economy.

But then again, the overly thrifty Japanese might get even more thrifty in the wake of the earthquake. That, coupled with interrupted industrial production—and the consequent loss of foreign income—might drive on deflation.

So we’ll have to keep an eye on the Japanese economy over the coming weeks and months: To see if the Sendai earthquake kickstarts the Japanese, or if it turns out to be one more deflationary nail in the coffin of the Japanese economy.

baja
03-15-2011, 09:42 AM
The Economic Aftershock of Japan
14 MARCH 2011 29 COMMENTS
By Greg Hunter’s USAWatchdog.com (revised)

The news from Japan is grim. At least 10,000 people are reported dead from the killer quake that rocked the island nation last week. Likely, the death toll will go much higher in the coming days. There have been at least 3,400 buildings destroyed by the flood of a 3 story tsunami, the 8.9 earth quake or by fire. Oil refineries were damaged and shut down. Roads and bridges were destroyed by the quake and the rail system was wiped out in some areas. On top of all this, several nuclear reactors are badly damaged and one even exploded.

A Reuters story said yesterday, “A grim-faced Prime Minister Naoto Kan described the crisis as Japan’s worst since 1945, as officials confirmed that three nuclear reactors were at risk of overheating, raising fears of an uncontrolled radiation leak. “The earthquake, tsunami and the nuclear incident have been the biggest crisis Japan has encountered in the 65 years since the end of World War II,” Kan told a news conference. . . . As he spoke, officials worked desperately to stop fuel rods in the damaged reactors from overheating. If they fail, the containers that house the core could melt, or even explode, releasing radioactive material into the atmosphere.” (Click here to read the complete Reuters story.) The question regarding containment of the damaged nuclear reactors in Japan is a big one. And, assessment of lasting damage to the surrounding areas is also in question.

The 8.9 magnitude earthquake (now updated by officials to 9.0-9.1 quake) is the “Black Swan” of black swan events. (A “Black Swan” event is something random and totally unpredictable. This term was coined by Nassim Nicholas Taleb, a finance professor and former Wall Street trader.) No one could have seen this enormous quake and its aftermath coming. However, now that much of the damage is done, we can anticipate some of the economic aftershocks from Japan.

On the oil front, it looks like prices will go down because Japan will not be using as much oil in the near term. The economy there is understandably grinding to a halt. Rescue operations and humanitarian missions are in full swing. Humanitarian needs of millions of people will continue for weeks and even months. When things do settle down, construction companies will get work rebuilding Japan, but rebuilding is not the same as business expansion. Rebuilding is just getting things back to where they were before the quake, but regardless, Japan will rebuild its cities, roads, refineries, rail system and infrastructure. That will take money–and lots of it.

One way for Japan to get money is to sell some of its $882 billion in Treasury bonds, and that is just what happened last Friday. The Wall Street Journal reported, “. . . Japanese investors sold U.S. government bonds to repatriate money home following the earthquake that hit that country. . . . Long-dated Treasurys were the biggest losers, reflecting concern that Japanese insurers may continue to sell such securities to pay insurance claims in the coming sessions. Such selling, however, was partly offset by buying from some investors seeking safety from the political turmoil in the Middle East and the euro-zone’s sovereign-debt woes.” (Click here to read the complete WSJ story.)

Japan is the second largest holder of U.S. debt. If Japan keeps selling, expect QE3 to begin sooner than expected. Other countries holding U.S. Treasuries may also sell if they fear an all-out U.S. bond rout. That could send interest rates up and mortgage rates would follow. There is another view reported by Reuters Friday, “The BOJ (Bank of Japan)is more likely to buy Treasuries to drive the exchange value of the yen down to stimulate the economy and help exports.” Christian Cooper, head of U.S. dollar derivatives trading at Jefferies & Co in New York, said he expected any Japan-related sell-off to be limited. “I believe we have reached a critical point where the disaster is so severe the BOJ will engineer liquidity mechanisms that will reduce the likelihood of forced selling in the Treasury market,” Cooper said. (Click here for the complete Reuters story.)

Even if Japan doesn’t sell a large chunk of Treasuries, it certainly will not be buying any in the future. Knock out the number two largest buyer of U.S. debt, and that will surely put upward pressure on interest rates. The Fed desperately wants interest rates to stay low so the U.S. economy will not jump off the tracks and plunge into depression. If rates do rise, expect the Fed to turn up the printing presses to hold rates down and fuel more inflation. This problem seems small compared to what the Japanese people are dealing with now. Please pray for Japan.





http://usawatchdog.com/the-economic-aftershock-of-japan/?source=patrick.net

baja
03-15-2011, 09:51 AM
How will all this affect the US bond market

What will it do to the dollar

This will have a huge global impact.

THE719!
03-15-2011, 10:32 AM
is it me or am I the only one who hears the swan song that the we has a human race anit got much time left....

baja
03-15-2011, 10:45 AM
is it me or am I the only one who hears the swan song that the we has a human race anit got much time left....

I think we will survive and eventually be far better off but getting there will be very rough.

Garcia Bronco
03-15-2011, 10:54 AM
is it me or am I the only one who hears the swan song that the we has a human race anit got much time left....

I would say its you and that you watch too much TV.

enjolras
03-15-2011, 10:56 AM
is it me or am I the only one who hears the swan song that the we has a human race anit got much time left....

It's a tragedy, but we'll do what we always do. Rebuild and continue on... in the scheme of tragedies this isn't even top-10.

baja
03-15-2011, 11:01 AM
It's a tragedy, but we'll do what we always do. Rebuild and continue on... in the scheme of tragedies this isn't even top-10.

Any one of these events we are currently experiencing would be easily adsorbed but if you take in to consideration all that is at work in the world today it's starting to look like a perfect storm, one that is not easily recovered from.

mhgaffney
03-15-2011, 11:35 AM
One outcome is that the US will lose influence in Japan.

After all, we sold Japan these reactors.

After the 2008 meltdown -- this will be the last straw.

alkemical
03-15-2011, 11:40 AM
One outcome is that the US will lose influence in Japan.

After all, we sold Japan these reactors.

After the 2008 meltdown -- this will be the last straw.

I'm sure we caused the earthquake too.

mhgaffney
03-15-2011, 11:42 AM
Alchemical,

What are you -- stupid? Like the knee jerks?

I've been saying all along it was Mother Nature.

bendog
03-15-2011, 12:10 PM
irony alert

Kaylore
03-15-2011, 12:21 PM
is it me or am I the only one who hears the swan song that the we has a human race anit got much time left....

We survived the plague. We survived world war II. We survived the fall of Rome. Things change but humans are a pretty tenacious, creative, smart group. We aren't going extinct from an earthquake.

TheReverend
03-15-2011, 12:34 PM
We survived the plague. We survived world war II. We survived the fall of Rome. Things change but humans are a pretty tenacious, creative, smart group. We aren't going extinct from an earthquake.

We survived an ice age when we were primitive. To me, that is the most impressive human feat thus far. Along with slaughtering neanderthal's wholesale and exterminating their species, but that hasn't been fully proven.

Meck77
03-15-2011, 12:41 PM
We survived the plague. We survived world war II. We survived the fall of Rome. Things change but humans are a pretty tenacious, creative, smart group. We aren't going extinct from an earthquake.

If you look at those who try and create panic on the omane they typically have grey hair. Their life is nearing the end and they feel they've lived the only good years left on mother Earth. It's human nature. While the old die off there are BILLIONS of eager youths ready to replace them with optimism!

Although the loss of life in Japan is tragic and there is still some uncertainty, from an economic standpoint the markets will absorb the news and correct over time. In fact the dow and other markets have already rebounded from massive sell offs.

From an economic standpoint this is what typically happens.
The little guys will panic and sell at losses!
http://www.marketwatch.com/story/it-rarely-pays-to-sell-into-a-panic-2011-03-15?dist=countdown

They already have the last couple days. The bigger boys and deeper pockets will profit.

alkemical
03-15-2011, 12:41 PM
Alchemical,

What are you -- stupid? Like the knee jerks?

I've been saying all along it was Mother Nature.

the post i quoted had nothing to say aboot mother nature, only about how US influence will be lost due to the nuke reactors.

I'd have to say, no you haven't "said it all along". Maybe if you were a better communicator, you wouldn't be so bitchy all the time.

mhgaffney
03-15-2011, 12:44 PM
We survived the plague. We survived world war II. We survived the fall of Rome. Things change but humans are a pretty tenacious, creative, smart group. We aren't going extinct from an earthquake.

No, but your great grandchildren may have two heads.

Not to worry.

As they say -- two heads are better than one.

bendog
03-15-2011, 12:47 PM
I don't think this will effect US/Japan relations, but I hope that countries nearer Japan (China/SK and to a lesser extent Russia) are sending relief supplies. I know the Navy is helping rescue efforts and there's already been some airlifting of stuff, but they'll need a lot of blankets and bottled water and such **** pretty quick

TheReverend
03-15-2011, 12:47 PM
No, but your great grandchildren may have two heads.

Not to worry.

As they say -- two heads are better than one.

Seriously?

Meck77
03-15-2011, 12:52 PM
No, but your great grandchildren may have two heads.

Not to worry.

As they say -- two heads are better than one.

Perfect example! May I introduce Mhgaffney!

http://img823.imageshack.us/img823/654/marksmile250opt.jpg (http://img823.imageshack.us/i/marksmile250opt.jpg/)

Uploaded with ImageShack.us (http://imageshack.us)

He also happens to make a living from profiting off tragedies and creating conspiracy theories.

TheReverend
03-15-2011, 12:57 PM
Perfect example! May I introduce Mhgaffney!

http://img823.imageshack.us/img823/654/marksmile250opt.jpg (http://img823.imageshack.us/i/marksmile250opt.jpg/)

Uploaded with ImageShack.us (http://imageshack.us)

He also happens to make a living from profiting off tragedies and creating conspiracy theories.

Wait...


I've seen him before!









OMG it makes perfect sense now!

























http://carpefactum.typepad.com/photos/uncategorized/2008/09/29/muppet_statler_waldorf.jpg

baja
03-15-2011, 01:15 PM
Mods;

Please move this to the WPR forum so as to avoid me deleting it.

Seems the usual people like turning events posted for discussion into personal attacks. I am sure the bulk of main board posters will appreciate the move as they have regularly said they are not interested in the behavior.

THE719!
03-15-2011, 01:46 PM
I am not only talking about earthquakes and other disasters i also including the way the world is today

TheReverend
03-15-2011, 01:49 PM
I am not only talking about earthquakes and other disasters i also including the way the world is today

...Relatively peaceful in comparison to the past?

Fedaykin
03-15-2011, 01:49 PM
The markets are getting beat up, but it's only a blip compared to 2008.

TheReverend
03-15-2011, 01:59 PM
The markets are getting beat up, but it's only a blip compared to 2008.

Less effect on the market than the Greece riots. Far from "getting beat up", imo.