14 Reasons Why the Economic Collapse of Japan Has Begun By Economic Collapse
Blog
| March 16, 2011
The economic collapse of Japan has begun.
The extent of the devastation is now becoming clear and
many are now projecting that this will be the most expensive
natural disaster in modern human history. The tsunami that
struck Japan on March 11th swept up to 6 miles inland, destroying
virtually everything in the way. Countless thousands were
killed and entire communities were totally wiped out. So
how does a nation that is already drowning in debt replace
dozens of cities and towns that have suddenly been destroyed?
Many in the mainstream media are claiming that the economy
of Japan will bounce right back from this, but they are
wrong. The tsunami decimated thousands of square miles.
The loss of homes, cars, businesses and personal wealth
is almost unimaginable. It is going to take many years to
rebuild the roads, bridges, rail systems, ports, power lines
and water systems that were lost. There are going to be
a significant number of Japanese insurance companies and
financial institutions that are going to be totally wiped
out as a result of this great tragedy. Of course in the
days ahead the Japanese people will band together and work
hard to rebuild the nation, but the truth is that it is
impossible to "bounce right back" from such a
massive loss of wealth, assets and infrastructure.
Just think about what happened after Hurricane
Katrina. Did the economy of New Orleans bounce right back?
No, there are some areas of New Orleans today that still
look like war zones.
Well, this disaster is much worse.
The truth is that this is going to be one
of the defining moments in the history of Japan. Hundreds
of miles along the coast of Japan have been absolutely devastated.
Authorities are finding it difficult to even get food and
water into some areas at this point.
Even before this great tragedy Japan was
one of the nations that was on the verge of a national economic
collapse. Their economy had been in the doldrums for over
a decade and their national debt was well over 200 percent
of GDP. Now the Japanese economy has experienced a shock
from which it may never truly recover.
The Bank of Japan is already flooding the
Japanese economy with new yen, and so we may indeed see
some impressive "economic growth" statistics at
the end of the year. But just because lots more yen are
being passed around does not mean that the Japanese economy
is in better shape.
The truth is that a tsunami of yen is not
going to undo the damage that the tsunami of water did.
A massive amount of Japanese wealth was wiped out by this
disaster. An economy that was already teetering on the brink
is now very likely going to plunge into oblivion.
It is fine to be optimistic, but the cold,
hard reality of the situation is that this is a knockout
blow for the Japanese economy. The extent of the devastation
is just too great. This truly is a complete and total nightmare.
The following are 14 reasons why the economic
collapse of Japan has now begun....
#1 The Bank of Japan has announced that
they have decided to flood the Japanese economy with
15 trillion yen. That is the equivalent of roughly $183
billion dollars. This is going to provide needed liquidity
in the short-term, but it is also going to set Japan on
a highly inflationary course.
#2 Japan’s Nikkei 225 stock average
declined by
more than 6 percent on Monday. As the full extent of
the damage becomes apparent more declines are likely.
#3 Oil refineries all over Japan have been
severely damaged or destroyed. For example, six refineries
that combine to process 31
percent of the oil for Japan have been totally shut
down at least for now.
#4 The damage to roads, bridges, ports and
rail systems is estimated to be in the billions of dollars.
The damage done to power lines and water systems is almost
unimaginable. It is going to take many years to rebuild
the infrastructure of Japan.
#5 Right now the flow of goods and services
in many areas of northern Japan has been reduced to a crawl,
and this is likely to remain the case for quite some time.
#6 Many cities and towns along the east
coast of Japan have essentially been completely destroyed.
#7 Japan's nuclear industry is essentially
dead in the water at this point. Even if there is not a
full-blown nuclear meltdown, the
events that have transpired already have frightened
people enough to cause a massive public outcry against nuclear
power in Japan.
#8 Japan is going to need even more oil
and natural gas in the long run to replace lost nuclear
energy production. Prior to this crisis, Japan derived
29 percent of its electricity from nuclear power.
#9 Japan is the second largest foreign holder
of U.S. government debt, but that is about to change. Japan
currently has about
$882 billion in U.S. Treasury bonds and they are going
to have to liquidate much of that in order to fund the rebuilding
of their nation.
#10 Many factories in Japan are closing
down at
least temporarily. For example, Nissan has shut down
four factories and Sony has shut down six factories.
#11 Toyota has shut down all production
at its factories in Japan until at
least March 16th.
#12 A substantial number of Japanese financial
institutions and insurance companies are absolutely going
to be devastated by this nightmare.
#13 Japan's budget deficit was already
9 percent of GDP even before this tragedy. Now they
are going to have to borrow lots more money to fund the
rebuilding effort.
#14 Japan's national debt was already well
over 200 percent of GDP even before this tragedy. How
much farther into the danger zone can they possibly go?
Sadly, as the economy of Japan goes down
it is going to have a huge affect on the rest of the world
as well. For example, Japan is no longer going to be able
to buy up huge amounts of U.S. Treasuries. So who is going
to pick up the slack? Will our government officials beg
China to lend us even more money? Will the Federal Reserve
just "buy" even more of our government debt?
Right now there are more questions than
there are answers, but what is clear is that the Japanese
economy has just been dealt an incapacitating blow. Hopefully
this tragedy will bring out the best in the Japanese people,
but no matter how resilient they are, the truth is that
this is something that no nation would be able to bounce
back from quickly.
Let us hope that the economic damage from
this tragedy will be contained and will not spread to the
rest of the world. The global economy is already in enough
trouble, and hopefully this tragedy will not cause a cascade
of economic failures to sweep the globe.