Sunday, April 10, 2011

A Bigger Japanese Tsunami May Be Coming

Beyond the human and environmental toll of the earthquake, tsunami and nuclear holocaust that Japan continues to deal with, one thing I have been thinking about for the past month is the worldwide economic toll. Before the earthquake, Japan had the second largest economy in the world and it has fallen to the #3 spot and may well fall much farther.

There is a really good article, "Trials of Globalization: And We All Melt Down" at This Can't Be Happening that speaks to the concerns I've had.
It’s certainly not my expertise. What I do know is that, on top of the terrible calamities brought on by the tsunami and the scary portents of the radiation spewing into the air, the ocean, and into the ground surrounding Fukushima and beyond, we are facing an economic juggernaut that is likely to shatter the world’s fragile recovery. You don’t take out the world’s third biggest economy – until recently, the second -- with no impact, despite the recent assurance by that reliable sage Timothy Geithner that the crisis in Japan would not hinder the U.S. recovery. (Meanwhile, Tim’s banking buddies are busy reviewing their clients’ exposure.)
As the author (Betsy Ross, a pen name) aptly points out, Japan provides a lot of parts for computers and such things, but productivity and distribution are way down for several reasons.
Needless to say, these are far from typical times, and this is no typical disaster. Faced with the loss of a critical supply partner, many companies around the world are confronting a quite different reality. Japan is suffering huge shortages as production capacity shrivels and logistical issues mount--particularly in the are of transportation. The Financial Times reports that Japanese manufacturing activity plummeted to a two-year low in March, according to the Markit/JMMA purchasing managers’ index, which hit its worst low since its inception in 2001.

We’re not just talking about the now infamous Japan-made five components that go into the iPad 2 or the wafer material needed to manufacture semiconductor chips or the metallic paint needed to produce shiny red and black cars. I can attest that companies of all sizes find themselves in the same pickle, with normally efficient Japanese production and transportation chains hobbled by power interruptions, radiation fears, earthquake damage, and severe after-shocks. These days, many global shipping lines won’t even dock at Japan’s busiest ports, Tokyo and Yokohama, for fear of radioactive contamination. And that’s not just being paranoid. If their hulls pick up any radioactivity, they could be barred later from other ports, for example in the US.
Even worse, the Japanese government must now figure out a way to pay to fix all the destruction wrought by the tsunami and nuclear meltdown. We're not talking about chump change either. Where might some of that money come from?
It’s possible the government will have to start cashing out their U.S. T-bills, which is a whole other story, since Japan and China have financed our government’s profligate ways for the past decade or so. One thing for sure is that foreign governments are not likely to rush into Japan with huge coffers of cash any time soon. The U.S. and European taxpayers are in no mood to spring for someone else’s Marshall Plan. And given their wretched history, China would be an unlikely savior for Japan, although strange things do happen...
Yes, there have been a few meager signs that the US economy may be coming out of its doldrums, but it is hard to imagine in this age of globalization that our economy will come away from this situation unscathed.

No comments:

Post a Comment

Comments are unmoderated, so you can write whatever you want.