In the face of the unfolding tragedy in Japan, it seems grotesque to turn to the money, but that’s the beat I walk. The story is rapidly changing, so at this moment we’re faced with more questions than answers.
- What will be the affect on the world economy? Disasters in advanced countries, especially, bring immediate costs but longer-term opportunities in the rebuilding. Japan is a rich nation with a high savings rate. So rebuilding is likely to be highly stimulative (this happened in Miami, for example, after Hurricane Andrew), including for American exports. Will it offset the lost production from the nation’s high-tech industry? Sony, for example, has several plants in the hard-hit region. Or does the earthquake only act to further deepen Japan’s other longstanding economic and political doldrums?
- How badly will the insurance sector be mauled? According to the Wall Street Journal, Moody’s says the sectors likely to face the heaviest losses are Japanese domestic insurers, Japan Earthquake Reinsurance Co. and international insurers, as well as global reinsurers, catastrophe bonds and retrocessionaires (the reinsurers of the reinsurers).
- The nuclear industry faces a big stumbling block to its renewal, especially in the United States. Its promise has been a low carbon footprint as the world tries (kinda) to combat climate change. Now, with the catastrophic events at the Fukushima Daiichi nuclear complex, old American fears from Three Mile Island are likely to resurface. The industry here, including Duke Energy and General Electric, has big money bet on building new American nukes. A panicky backlash is not in order, but neither are the usual complacent reassurances. The Oil Drum has a good primer on the situation.
- Finally, David Cay Johnston offers a sober and sensible set of questions and answers as we assess the calamity. It’s essential reading.
Today’s Econ Haiku:
A mudslide again
Interrupts Sounder service