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The Japanese Economy Is In Much Bigger Trouble Than Most People Think

Now that nearly a month has gone by since the horrific tsunami in Japan on March 11th, it is starting to become clear just how much economic damage has been done.  The truth is that the Japanese economy is in much bigger trouble than most people think.  This is almost certainly going to be the most expensive disaster in Japanese history.  The tsunami that struck Japan on March 11th swept up to 6 miles inland, destroying virtually everything in the way.  Thousands upon thousands of Japanese were killed and entire cities were wiped off the map.  Yes, Japan is a resilient nation, but exactly how does a nation that is already drowning in debt replace dozens of cities and towns that are suddenly gone?  The truth is that thousands of square miles have been more completely destroyed than if they had been bombed by a foreign military force. 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.  Nobody is quite sure when the rolling blackouts are going to end, and nobody is quite sure when all of the damaged manufacturing facilities are going to be fully brought back online.

On top of everything else, the nuclear crisis at Fukushima never seems to end.  In fact, it seems to get worse with each passing day.

According to the Los Angeles Times, it has now been announced that seawater off the coast of Japan near the Fukushima facility was recently found to contain 7.5 million times the legal limit of radioactive iodine....

The operator of Japan's stricken Fukushima nuclear plant said Tuesday that it had found radioactive iodine at 7.5 million times the legal limit in a seawater sample taken near the facility, and government officials imposed a new health limit for radioactivity in fish.

Do you think anyone is going to want any Japanese seafood after this?

In fact, at this point one must really question the long-term prospects for the seafood industry in that entire region of Asia.  There are going to be tens of millions of people (myself included) that will no longer want anything to do with any seafood that comes from that part of the world.

Sadly, some nuclear experts now claim that it could take years to bring the reactors at Fukushima fully back under control.

At the end of this crisis, how large of an area around Fukushima will be uninhabitable?

A 20 km radius?

A 30 km radius?

A 40 km radius?

More?

Japan is the third largest economy in the world, but it never was a large nation to begin with.  Now that the tsunami and the nuclear crisis at Fukushima have made the amount of usable land significantly smaller, what is that going to mean for the future of the Japanese economy?

That is a very good question.

The truth is that there are already signs that the Japanese economy is regressing into another recession.

According to The Telegraph, one major manufacturing index in Japan has already shown a very serious decline....

The purchasing mangers’ index (PMI) gave an early indication of the extent of the damage wreaked on the economy as it dropped 6.5 points to a reading of 46.4, the largest slide since the survey began in late-2001.

In particular, the auto industry is really being affected by this crisis.  Vehicle supply chains all over the globe are now in a state of chaos.

Approximately 3,000 individual parts go into every single new vehicle.  If even one of those parts is missing, a new car or truck cannot be built.

So just how big of a problem are we looking at?

Well, it was originally projected that 72 million vehicles would be built around the globe in 2011.

As a result of the crisis in Japan, approximately 5 million of those vehicles will not be built.

That is very serious.

In fact, Goldman Sachs is projecting that this crisis is currently costing automakers in Japan $200 million every single day.

Ouch!

A recent article on CNBC detailed some of the problems that Japanese automakers are facing right now....

In the weeks ahead, car buyers will have difficulty finding the model they want in certain colors, thousands of auto plant workers will likely be told to stay home, and companies such as Toyota, Honda and others will lose billions of dollars in revenue. More than two weeks since the natural disaster, inventories of crucial car supplies -- from computer chips to paint pigments -- are dwindling fast as Japanese factories that make them struggle to restart.

Unfortunately, the worst for the auto industry is yet to come.  AutoNation is warning that "production disruptions will significantly impact product availability from Japanese auto manufacturers in the second and third quarters of 2011."

Because of supply chain disruptions, a number of North American manufacturing facilities look like they will be shutting down at least for a while.

For example, Toyota has announced that it will be shutting down all of its North American factories for a certain period of time because of shortages of parts from Japan.

But Toyota is far from alone as a recent report in The Globe and Mail made quite clear....

Honda Motor Co. Ltd. has already slashed output by half at its North American plants, while Nissan Motor Co. Ltd. will shut all its U.S. and Mexican plants for at least one week in April. Ford Motor Co., too, has halted production at a truck plant in Kentucky this week.

So why don't North American facilities just switch to other suppliers?

Unfortunately, as CNN recently noted, it is just not that simple....

Japanese companies also specialized in making the array of highly specialized computer chips that control everything from the engine to the brakes in modern cars. Computer chip production is a complex process that can take weeks and involves hundreds of individual steps, Morgan Stanley analyst Noriaki Hirakata said.

Not only that, but if an automaker is forced to find a new source for an electronic chip, the process of "certifying" a new computer chip supplier -- that is, determining that a new company can meet all the requirements for cost, quality and quantity -- can take as long as a year, Hirakata said.

The truth is that this is a complete and total economic disaster.

The Japanese economy is not going to be the same for many years to come.  In fact, many are now warning that this could be one of the triggers that could lead to another major global financial crisis.

One of the big fears is that Japan will need to sell off a large amount of U.S. Treasuries to fund the rebuilding of that nation.

If that were to happen, it could result in a "liquidity crisis" similar to what we saw in 2008.  Already the rest of the world is really starting to lose confidence in the U.S. dollar and in U.S. Treasuries, and if Japan starts massively dumping U.S. government debt things could get out of control fairly quickly.

In any event, it is undeniable that the Japanese economy has been absolutely devastated by this crisis.  In fact, when you combine the tsunami and the nuclear crisis, this could be the biggest economic disaster that any major industrial power has faced since World War 2.

So will the crisis in Japan push the rest of the globe into another major recession?

Only time will tell.

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  • VegasBob

    Don’t worry about Japan’s auto industry, folks. You can always buy a crappy car from Government Motors – maybe Benocide Bernokio over at the Federal Reserve will give you a zero percent interest rate.

    On a more serious note, regardless of the situation in Japan, I think the US economy will fall back into recession by the end of 2011 if Bernokio stops the QE2 money-printing at the end of June as scheduled.

  • http://www.planorperish.com/ Gutter Economist

    From The Nostradamus Code

    (Centurie VIII, Quatrain 29)

    A great and rich power will be subject to serious natural disasters, particularly earthquakes and flooding, and rend the nation from end to end, causing enormous conflict, despair, and misery. The wealthy power will be bankrupted attempting to deal with its disasters. Three other great nations will send aid to help the citizens survive.

  • Faux Gary

    Can’t we tax the rich and give the money to the Japanese?

  • michelle

    the enormity of the situation will not be known for a long time. radioactivity is something new and you can’t just re-build after it. The loss of farmland, fishing, and other industries is still yet to be determined.

  • El Jefe del Guano

    we.are.f*cked

  • karen

    I work for the goverment and we are preparing for a shutdown, if this happens a million civilians will be applying for unemployment along with auto factory workers, the states will not beable to handle this load. The military will only get a spot check every now and then, if they cannot pay the military do you really think they can pay retiered military or veterans either, no they can’t so the whole enemployment system will collapse.

  • Matt

    Out of the Japan disaster came the launch of QE3, and this time it is global QE, not just the U.S. Those U.S. Treasuries won’t be allowed to be dumped. The Boyz at da Fed will see to that with more eMoney created to pump into Japan thru the backdoor so they don’t have to sell their Treasuries. Meanwhile back here in the United States Socialist Republic, QE3 will probably not be marketed as such since that would be like Motorola coming out with Razr 3 – a bad marketing ploy stupid company-killing idea. Instead, da Boyz at da Fed are right now doing their market research analysis on how best to present the continuation of “eMoney out the A” such that the American Sheeple lap it up like espisode 497 of Dancing with the Coke-Heads. And do you really think anyone in the USSR (Amerika) cares about all the bad stuff in Japan anyway since all that bad news just puts them in a worse mood on top of their own bad news of no job, underwater on their mortgage, can’t afford gas, and now the grocery bill is getting ridiculous also, etc… Who has the time & energy to worry about Japan – we got our own problems – don’t tell me about Japan… (tongue in cheek).

  • RachelMcW

    Not only the auto industry will be affected but many others as well. Who do you think makes the computer chips and electronics that go into the cell phones, TV’s, computes, refrigerators, and everything else… Imagine next Christmas shopping season when there will be no new cell phone or computer game.

  • C

    Looks more like a war torn 3rd world country now, but it’s not, so they will rebuild and thrive, maybe sooner than we think. The biggest concrete pumpers in the world are heading for Fukushima. It’s time for concrete. The manufacturing will come back, but of course auto competition only gets stronger moving forward in time. I agree, time will tell. Just look at Katrina, similarities will prevail.

  • Cleber

    Risk! Risk! Risk!

    This is one more example about risk management.

    The stuf isn’t exclusively the ideolgy of bankers. This kind of management is attached to our entire decision maker system!

  • Patriot One

    This is just a trigger event in a chain of events. The ring of fire is active, very active. Chile, Austrailia and Japan are just three spots in the ring of fire. If it continues we should see the west coast hit within months.

    We need to wake up folks. Its a very dangerous world out there. If you are very prepared and have years worth of supplies, what good would it have been in an event like Japan? Could you have loaded up and gotten inland fast enough?

    The sad fact is you will likely only have what you have with you at the time of an event like Japan. Imagin that happening on the east or west coast. Its a great reason to keep a Bug out Bag with you at all times.

    As for the economic impact of Japan’s event, I don’t think we have seen anything yet. The real facts have been covered up by massive money printing and lies about the extent of the nuclear risk.

    If you don’t think we are in serious trouble just check out the numbers in the CNBC article on the Government spending for March. How can we spend more then 1 trillion in March when we only have a 3.7 trillion dollar budget for the whole year? Oh I get it the Federal Reserve just marked up the Governments account. So we are not really printing money, its just a digital markup. Its so our of control that the dollar isn’t even worth printing.

    What about the middle east? I really don’t have time to go there, but like the far east its bad too.

  • Zazz

    To all those that predict recession, look at corporate profits which are high. Look at merger and acquisitions which are on the comeback. Then tell me we are going into recession again.

  • http://TheEconomicCollapse Dave

    Another factor to weigh into the equation is what this is going to do to the Japanese psyche. Japanese have been content with their energy independence through nuclear power plants. If they switch to other sources of power, they lose their energy independence. Combine that with the trauma of this disaster and the modern picture we have of peaceful and industrious people could be replaced by war-like and exploitive people like we had in the 1930′s and 40′s. Especially, if because of economic collapse, America was no longer available to help out. Scratch the Japanese soul deep enough and we find underneath a people that will do what it takes to survive as a great nation. They will not just go quietly into the night from second/third place to 20th place. This three prong disaster could be the scratch that reveals to the world, the Japanese tiger. How would we know if their character has changed? If I were in the U.S. state department, I would be keeping close eye on the build up of their navy.

  • Wobbly-1

    The world is looking at this as “a Japan issue” when in reality it is a world issue. This is not some 3rd world nation we are talking about. This is a major economic player on the world stage. This crisis could crash the US economy when they sell off the bonds they hold of ours trying to finance their recovery. This event will likely trigger our depression (or at a minimum stagnate any recovery economically here). We need to be real worried about this. Our sham news agencies have moved on to other subjects but this one could be the deal breaker for our economic collapse.

  • Mr Carpenter

    It’s not just the Japanese automotive manufacturers which are suffering. The automotive industry (as well as all electronics industries) are inter-twined and supply chains are broken in many places.

    The affects things in many ways, both minor and major; minor being things like red and black paint for most cars is now difficult if not impossible to obtain, so this means if you want a new red or black car, and one is not on the lot and none can be “dealer traded” to get one for you – you won’t get one.

    Somewhat more major is the fact that eventually it may become difficult to obtain paint to REPAIR red and black cars damaged with insurance companies wanting to clear out their claims books quickly – and being unable to do so. So what will they say – “we can’t get paint – so you’ll have to pony up another $3000 to repaint your car another color”?

    In fact, the figures above may be LIGHT – production worldwide of all automobiles may be hit to the tune of as much as 35% this year.

    So, “thanks a bunch Obama and Distrikt of Kontrol for destroying tens of thousands of used cars awhile back with cash for clunkers” because now used cars are way more expensive – and they will go nowhere but up in price because when the supply of new cars is cut in a major way, the new car prices will also go up along with used (and this is already happening).

    Which will feed the hyperinflation monster, of course.

    Oh yes, the economy worldwide will take yet another major hit when auto factory and supplier factory crews are laid off, right? Right. Then of course, they’ll stop spending money, which will cause layoffs in their towns and states, etc. Right? Right.

    See how the dominoes fall? One….at….a….time….and…they…keep…going….and…going…and…going…

  • http://www.forecastfortomorrow.com Tomster0126

    So much worse than WWII…radiation and tsunami damage everywhere. Is this really a sign of a global collapse? Way too many disasters and catastrophes in recent years not to consider a total collapse in the future.
    http://www.forecastfortomorrow.com

  • http://www.manofthewest2000.blogspot.com/ Matt Beck

    Yes, the fact of the matter is that Japan was in a slow-motion economic and demographic disaster long before the fast-motion tsunami produced a much more dramatic disaster. But the first disaster would have eventually been fatal even without the tsunami, and it is doubly so now. For anyone interested in the deep ennui of Japan, I suggest you check out the blog “Spike Japan:”

    http://spikejapan.wordpress.com/

    This is highly absorbing photojournalism and it expertly chronicles the Japanese decline from the inside.

    Be prepared folks, these are dangerous times.

  • Jeff

    I agree completely, that Japan is worst than being reported. What is going to happen here in the US, when all our imports for products we used no longer come in? Alot of industries are going to have to shut down, since we have no ability ourselves to build it.
    I see nothing but more red in the days/weeks ahead.
    gogle/yahoo: DailyJobCuts

  • DMyers

    Major crises are piling onto one another, as the time acceleration theorists predicted. “History is repeating itself in a compressed version,” quoting my recollection of a Terance McKinna assertion.

    Thanks for bringing out an honest thoughtful statement about this major event. Which brings me to the lack of information about these latest environmental catastrophes. With the Gulf oil disaster last spring and with this new nuclear catastrophe, I sense that there is now a broad feeling, like my own, that the information about these things is being skewed to our detriment.

    Will we be able to cap this thing and forget about it, as in the Gulf, or will radiation prove to be more than any ability we can muster to contain it? This could unfold very rapidly, as months in shelters and without the comforts and schedules that maintain the social order drag on.

  • PaulF

    Gutter Economist, it seems you’re a gutter prophet as well. :) What you posted could apply to, oh, maybe 1,000 scenarios in the last 500 years.

  • http://www.danielrevelationbiblestudies.com Robert Stout

    Excellent article!!! This country and the world is by far way over their head and is drowning in a sea of debt!! The government is about to shut down because the Democrats and Republicans cannot agree on a spending budget!!! Fellow Patriots, a REVOLUTION is coming very quickly because a lot of people can not take all the deception coming out of the current administration!!! The media and the government has deceived many Americans for so long that many have bought into the deceptions and cannot tell the truth from error!!! Now is the time to prepare and have been sending these two web sites that will help a person prepare physically and spiritually. Go to http://www.survivorblog.com for your physical needs and http://www.danielrevelationbiblestudies.com for your spiritual needs, you will be eternally glad you my friends!!!

  • Sherlock

    Environmental concerns are about 5 times more important than anything economic.

  • Me No Likey

    @Robert Stout. I’m sorry, but the revolution is NOT coming. This morning while I was changing in my gym and unable to escape the CNN propaganda spewing forth, there was none other than Oscar de la hoya who had been visiting “our troops” in Afghanastan. I never once looked up at the boob toob, but almost vomitted hearing him telling all the sheeple how “we must never forget” (he must have used the phrase about 10 times) that “our” troops are there “fighting for our freedom”, that all the soldiers he talked to were absolutely there “fighting for our freedom” (another 10 times–was he reading from a teleprompter?). It’s great PR bullshit for him, the CNN propaganda machine gets viewers, and the sheeple feel wonderful because it’s somebody who they will never be telling them all the things they want to hear. There will be no revolution because there is nobody intelligent enough to start one.

  • mondobeyondo

    The Japanese people are not wimps or weaklings. They are probably some of the most resilient people on earth. In the past, they have been hit by devastating earthquakes, wars, typhoons, tsunamis, and atomic bombs. They recovered from each of those, and created one of the mightiest economies on Earth.

    But they have never suffered a triple whammy like an earthquake, tsunami and nuclear disaster – all at the same time!

    Let’s hope the resiliency of the Japanese people shows through once again. They will need every ounce of it.

  • mondobeyondo

    If you don’t get on your knees, God will bring you to your knees…
    Either way, you’d better pray.

  • 007

    Zaas, this is nothing but an easy money propped up economy and stock market. Everyone is catching on. Watch CNBC. People don’t know where else to put their money. Corporate profits from a few major global companies have little to do with the misery facing the average person. As soon as Bernanke quits printing the money, the market and economy will crash. If he keeps printing we will get hyperinflation and eventually riots. Either way it is going to get ugly. When the music stops hope you find a chair.

  • DownWithLibs

    Romans 10:9! ;-)

  • DownWithLibs

    Noticing big changes on Mt. Rainier in the last 4 years. Expect something BIG in the Seattle area soon!

  • impeachRonPaul

    Rwligous people are so annoying. A bunch of low rent idiots always in your face with their beliefs.

  • Terry

    Chernobyl was in a much less densely populated nation and the Soviets basically entombed the reactor and walked away. Where do the Japanese walk to?
    That said, nuclear power will be needed for the forseeable future. Wind and solar cannot provide the amount of energy required by a modern society (especially if we adopt the electric cars they love soooo much). The environmental nuts will have to get out of the way and allow construction of newer, safer plants. Some lessons from Japan include: more redundancy in cooling, better containment structures, and reprocessing of spent fuel to reduce the amount laying around.
    Right now the USA is stuck with what is basically WWII era technology.

  • http://www.pathtoasia.com rhea

    When economy of Japan goes down,it is going to have a huge affect on the rest of the world as well, However, don’t underestimate the Japanese. Their culture is a “we” mentality, not the “me” mentality we have. The Japanese debt is internal–the Japanese, unlike us, did not borrow from a communist country.

    We help Americans find jobs and prosperity in Asia. Visit http://www.pathtoasia.com/jobs1/ for details.

  • loicmba

    fortunately we’re looking forward to some religious dates: May 21 supposedly and there’s always 2012 coming..i wonder what the rwligious will say when nothing more than the same flows in from the future?

  • denny

    All the concrete on earth will not solve the Fukushima disaster. For a very thorough and honest, yes, honest assessment of the nuclear calamity may I suggest Arne Gundersen at Fairewinds Associates. Anything, yes, ANYTHING from MSM has either been greatly altered or just plain mendacious. Perhaps I’m wrong in my assessment; but the first response of our leadership to the runaway nuclear calamity at Fukushima were firm and dedicated comments concerning their unflagging commitment to nuclear energy. This is one of the most patronizing, contemptuous and sociopathic responses ever, yes, EVER in the history of human disasters. It doesn’t matter what their political differences are as our leadership’s responses to this potentially genocidal ecological disaster prove undeniably that they inhabit a reality usually found behind the protective barriers surrounding facilities for the criminally insane. For me the unavoidable logical question is, “What next?”

  • Concrete man
  • Megan

    It’s a good thing for Japan to fall so they would know what it is like being down and not take advantages all the time.

    • dandy dale

      sounds a little like the middle east take after the towers collapsed

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