For the past couple of days, people have been making a big deal out of the reactor meltdown at Fukushima. Indeed, if worst comes to worst and all hell breaks loose, Tokyo is most definitely going to be evacuated and Japan will never recover.
But I think Japan is doomed for economic reasons. Even assuming the reactor is okay, I don’t think Japan will ever properly recover from this (at least, not in its current form).
As you guys all know, Japan’s economy crashed and remained in that state for the past twenty years. Keynesian attempts at “revival” of the 80s boom failed to do anything except increase government debt. The high levels of saving in Japan prevented inflation from kicking in (which would result in another boom, followed by another bust), as Japanese consuers effectively “hoarded” the new money, keeping prices steady or down. However, saving has been dropping over time due to Japan’s poor economic situation.
Now, we have this earthquake. There is plenty of destruction, and that isn’t even counting the power plant (which is causing very high consumption in fear of radiation poisoning food, water, etc). The Keynesians claim this will cause some prosperity from the boom, but that is concealing a rather deadly issue that few (one person on a site somewhere said Japan is inbound to receive this too, but I don’t remember where. Could someone link it if they know what I am referring to?) seem to be noticing.
Japan hasn’t been getting inflation because of saving, as most new Yen goes to Japanese consumers, which in turn is saved (as I recall, the savings rate is high because it is a symbol of status to own a house, which is very expensive, so people save to buy their own houses), preventing prices from rising. But now, people are spending like crazy, even those who were formerly frugal with their cash, as they fear a disaster from the NPP. So all of the inflation of the past twenty years, all of the manipalution by the BOJ, is coming out into the open.
Yeah, I think you can see where I am going with this. Spending is going to rise incredibly fast, both from consumers buying emergency goods and from the government buying supplies for rebuilding. For a short while, this may appear as amazing growth of the Japanese economy, accompanied by heavy Yen fluctuation but shifting towards a stronger Yen (being pushed back by the idiots running central banks trying to weaken the Yen, which will make things worse) as the Japanese government will be converting foreign currencies to Yen to pay for building.
Then, after the converting is finished, the inflation will come to bear. The Yen’s value will drop like a rock and keep going down. Japan’s exports will fail to help Japan, as the earthquake and rise in value of the Yen will have weakened that sector considerably (not to mention that it isn’t especially powerful these days, anyway). Japan will be the first of the “Great Powers” to be struck down by hyperinflation.
Of course, I would prefer this doesn’t happen, but it sure looks likely. Japan has been inflating for years, while its economy has gone nowhere at all. That inflation has to come up sooner or later, and now is about as good a time as any. Comments? Criticism? Etc?
