fromhttp://www.oftwominds.com/blogmar11/thoughts-on-Japan3-11.html
(snip)I suspect the consequences of Japan's massive earthquake will be much more transformational than most now imagine.
Long-time readers know that I studied Japanese language, culture, literature and geography in college, and that we have many friends there.
Thus it is not just an academic exercise for me to ponder the longer term consequences for Japan and the world as the full extent of the damage is toted up.(snip)
(snip)Despite the many strengths of Japanese society and culture, and the tremendous reserves of talent, dedication and self-sacrifice of its people, my gut feeling is that this series of devastating earthquakes will have more enduring consequences on the world economy than most observers seem to expect.
Japan has managed to sustain a 20-year Keynesian experiment in central government borrowing and spending "stimulus" rather than force the insolvency of its vast banking and insurance sectors. What allowed this endless piling up of debt is the people's willingness (channeled by regulations and limitations on other investments, of course) to buy low-yield Japanese bonds.
But Japan's demographics are changing. The Baby Boom generation which sunk their prodigious savings into bonds is retiring, and instead of buying more bonds they are selling assets to fund their retirements and healthcare.
On the surface--in public--Japan appears to be entirely stable financially. It's as if the national debt, currently about 200% of GDP, could rise to 300% or 400% or 1,000% without any consequence or breakdown. But demographics changes all sorts of things, and the added financial burdens of funding trillions of yen in rebuilding costs could push Japan's public finances over some unseen edge.
Should Japan be unable to self-fund its ever-rising debt, then it would have to compete globally for bond buyers. Interest rates would have to rise, and that would eventually trigger a collapse in public finances, as the costs of servicing that rising debt exceeds the government's ability to borrow money.
Japan's Status Quo--its "Establishment"--has clung on to various structural imbalances for the past two decades, refusing to threaten powerful financial and political fiefdoms with fundamental reforms. The Status Quo has played "extend and pretend" on a vast scale for an entire generation, and this has pushed Japan to a financial precipice.
All this makes me wonder if the initial "let's work together, it can't be helped" stoicism and self-sacrifice will erode at some point and trigger a social earthquake: a sudden demand for real reforms rather than more facsimiles of reform that change nothing in the power structures of the economy and government.
Some analysts have reckoned that Japan will consume less oil and resources in the wake of the quake, but if we look out a bit further, we see that rebuilding will require monumental amounts of energy and materials. Japan's consumption of commodities will rise, not fall.
Though China gets all the media attention, Japan is still a critical supplier of numerous high-tech parts in the global supply chain. The Japanese global corporations have learned from experience that anything they make in China will soon be pirated, so they have withdrawn all the really high-tech manufacturing to the home islands.
I suspect most analysts are complacent about the possible global ripple effects of these quakes, simply because Kansai and Tokyo were largely spared.
Given its great stability and wealth, Japan seems an unlikely candidate for social or financial changes triggered by a natural disaster. I am not so sure it is immune to these forces, given the fragility of its central State and local government finances and its sclerotic Power Elites and political machinery.
The quiet stoicism of the next few months may give way to more systemic and possibly transformational forces than most observers believe possible.(snip)



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