Again sitting here in the comfort of my home with the lights and power on sipping clean drinking water watching the events in Japan unfold as the ticker for the number of souls lost continue to toll higher and higher as the hours click past. However I’ve been around long enough to know that there will be far more fall out as a result of this even which will send economic shock waves around the world. As its clear the destruction is so wide spread from the triad of events including the earthquake itself, the following tsunami, and now the nuclear crises, the world won’t be the same for a long while.
As Japan boasts the world’s 3rd largest economy at $4,305,000,000,000 Purchasing Power Parity or PPP GDP only behind the United States and China, its Central Bank is now finding the need to inject and astonishing 15 Trillion Yen into the monetary system. This 183 billion (USD) of inflow is an amazing amount of capital and is backed by yet another 61 billion (USD) and frankly have to question if that will even be enough. As the devastation is so high, it will call into question the solvency of many financial institutions as well as operating businesses. In addition it will place a massive weight on social systems which will be forced to make up the difference in the provisioning of food and healthcare to the masses due to the loss of business.
The rebuilding will also come at a precarious time for Japan as first of all, should it rebuild at least in the areas impacted as when you steal from nature, it will always take back. So once bitten twice shy however who are we to talk as we’ve built the 6th largest economy of the world on a fault line too being California just because of the sunny weather. However while never a good time for disasters to come, this is an extra difficult time for the fragile Japanese economy, as it has now slipped from being number two to the world’s third largest losing ground to China in 2010. As Japan’s heavily export-driven business was hit hard by the financial crisis and a rising yen, which negatively impacted profits from its sales abroad.
The rebuilding efforts from the triad of disasters also will add to Japan’s already towering load of public debt; as it stands at nearly twice the size of its total GDP which is the highest in the developed world. With this said, many rating agencies such as S&P have downgraded Japan’s long-term credit ratings in January prior to the events of the past week, citing its high fiscal deficits. So with this injury added to the existing insult brought forward by the preexisting national debt we could be looking at the unthinkable.
Yes the first true collapse of a world economy as one could be looking at physical damages ranging upwards of 160 billion (USD) which does not account for the loss of the economic opportunity over time which could be equal to or double this number depending upon the impacts of the nuclear portion of the event. As not only will there be the environmental and health issues which will result from the failure, there is also the fact it will not be easy to replace this power and energy is the driver of business. So while we pray for the people of Japan impacted by this event and their families, it’s clear the economics of this event will ripple back and forth throughout the world economy for some time to come…