Monday, March 28

Japan quake cleanup could swamp with debt

It at the beginning of reconstruction of the worst natural disaster in the history of Japan's economy is a greater threat than the destruction of a relatively small portion of its industrial production: debt.

To pay for the reconstruction, billions of dollars in fresh borrowing of a debt, the Japanese Government must pile, which already is one of the largest in the world.

Last week devastating 9.0 earthquake and the resulting 30-foot tsunami only was to latest blow to an economy that has fought, again on its feet two decades after the collapse of a large financial bubble.

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"Japan have a terrible set of problems, which it now were fighting for more than 20 years has", said Steven Roach, non - Executive Chairman of Morgan Stanley Asia. "she have to rebuild the financial system." And they have the most powerful demographic headwinds of each economy in the world: their population is not only aging, it goes back. "

These two "lost decades" four recessions and links with growth virtually flat lining, growing GDP, on average, less than 1 percent per year. Long before the earthquake struck, the Japanese economy had expected forecasters continue to customer in the next few quarters.

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Japanese Government to try to revive growth, issues were strong, but with little lasting impact, except to build a mountain of loans which are repaid. At approximately double its annual GDP has Japan of one of the world's highest public debt, second only to the Zimbabwe, according to the CIA factbook. On the other hand, is the United States to place 36, with a public debt of around 60 percent of GDP.

Now that it is a big relief for you and reconstruction efforts, Japan more to cover the costs, emissions must the provisional estimates place about 200 billion dollars. The risk is that how it on more debt piles, the Japanese Government to higher interest rates to investors continue to demand for these new bonds pay.

"Printing they all this money to out of this mess and eventually interest with all will increase this pressure", said Lawrence McDonald, President of McDonald's Advisory Group, an investment firm management. "A single % increase in interest rates is equivalent to 25 per cent which is their tax revenues."

Higher also makes it more expensive for businesses and consumers to borrow, it a damper on spending and investment and create a further headwind for the Japanese economy.

It is unclear how much money of the Government will have to borrow. The reconstruction to cover costs is expected to only a relatively small part of private insurance. This is because Japan has a comprehensive, Government-backed earthquake insurance program, which covers some individual owners and backstops insurance companies of large losses. First estimates put total losses covered by private insurance companies to not more than $35 billion, or about 6 percent from the estimate of overall loss.

This means that some of the cut the cost of reconstruction out of the Pocket, back in profits and consumer spending have to pay are companies and consumers.

Japan's economy takes a hit from the industrial production of damage Quake to factories closed. There were imminent for parts and components, especially for the electronics and auto isolated reports of shortages.

But Japan is a large diversified economy and the disaster area is a relatively small portion of the country's GDP. Economists also note that the devastating loss of any major natural disaster, especially in a developed country such as Japan, usually heavy expenditure and investment in the reconstruction, all follows that helps to promote growth.

"I not attempts to say, there are no problems," said Steven Wieting, Citigroup Director of the economic and market analysis. "But also radiological disaster, Chernobyl, three mile Iceland, what happened with the deepwater horizon in the last year, it is a lot of emotion and concern." "But none of the events, including the earthquake in Kobe, all these natural disasters not long-term, lasting economic impact."

As for the global economy, despite isolated parts lack of Japanese suppliers the Japan earthquake is "Not likely to global trade be significant" and the impact on the Japanese economy will likely "be, localized" according to FedEx CEO fed Smith.

"" You put this way: If we unfortunately one terrific tragedy in Arizona "or saying"Oregon art on the periphery of the country had, it would be terrible,".""But the rest of the United States in all probability would continue operation."

Yen rises
The value of the yen is a potentially larger problem of the recent increase in Japan. The quake induced surge is the result of the various forces, according to currency market observers. Japanese insurance companies and other companies and investors are believed, have sold other currencies loud, cash back home to increase on foreign assets. The scramble to buy Yen has forced its value.

Forex traders have increased movement, by you betting on the rise. That a coordinated effort, the first since the year prompted the central banks of the seven largest industrial countries Thursday, 2000, to agree to hold to the value of the yen in check.

A rising Yen could be with a larger problem than what the Japanese Government may be relatively small damage to its industrial base. Verteuert pay a higher Yen Japan products for everyone in the rest of the world for them with a different currency. That makes Japan's exports less competitive in the global market and offers international companies one more reason to look for other suppliers.

The latest round of government borrowing presents a conundrum for Japan's central bankers, who have fought for years to keep economy with a policy (also more recently by the US Federal Reserve) called "quantitative easing." low interest rates the policy to by dramatically expand the money supply, Keeping interest rates low to stimulate borrowing and revive growth.

It did not work in Japan. Now, as the Japanese Government market with new debt floods, the Central Bank must continue to purchase the bonds if private investors on the plate and help finance of the country's reconstruction efforts intensify not.

Japan's malaise could be eerily familiar in some US officials. The Fed is in his second over, about $600 billion buy bond in June, a response to the collapse of the much younger American financial bubble. As now with its large debt burden Japan, could learn U.S. policy makers from Japan's experience, according to Roach, much.

"Twenty years later, the post-bubble experience the Japan all must give US pause to think, above all those of us in the United States, who believe that it could never happen us", he said. "These are very devastating events and there are lessons in Japan, I think, many of us have not learn."

© 2011 reprints

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