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Trials of Globalization: And We All Melt Down

Meanwhile, we’re scrambling to source alternatives. I can tell you first-hand, it’s not so easy to just trip over to Europe or China, and duplicate parts and processes proprietary to the secretive and justifiably possessive Japanese. For global factories, big and small, that rely on Japanese goods and expertise for even a small fraction of their processes it will take at least some months or longer to retool.

March’s U.S. employment numbers may look good to some, but wait until the impact of this economic tsunami starts to hit. Already, automakers as far afield as Louisiana, Mexico and Belgium are facing temporary shutdowns due to lack of parts. What happens when government treasuries already drained by the global banking industry have only empty hands to show the long-term and newly unemployed? That’s if the government is even open for business in our case.

Worse, we face the specter of growing inflation as goods grow scarcer and the costs of developing alternative supply chains start to kick in. Semiconductor chip prices, which affect the price of everything from cars to iPods, already rose in March as a direct result of earthquake-induced scarcities, according to iSuppli Market Research. Compounding the problem, China is already resorting to price controls in a futile bid to quell its soaring inflation and, equally contrived, the U.S. Fed continues to pump cash and dump it into our non-performing banks.

Oh, and what about that big payday when we all get to rebuild the Land of the Rising Sun? This goes way beyond scorched earth, people. Even if that private gathering of nuclear wonks at Stanford was wrong, and the environmental and health impacts in northern Japan prove to be negligible, there is still the question of how they are going to muster the moolah for a vast reconstruction project. That’s on top of sharing the insurance burden of Fukushima with Tepco, the utility that owns the plant.

Newsweek’s Emmott is sanguine on this score: “Insurance pays for some of it, government spending and private investment the rest.” Already, the Japanese central bank offered a loan program worth $11.7 billion to financial institutions in the disaster area. But, bear in mind that the Japanese government has the highest debt of any developed country, running 200% of GDP.

Of course, Emmott has an answer for this too, suggesting the Japanese simply “borrow more” (sure ‘nuff) and impose a “special reconstruction tax”, assuming that the “Japanese people will be entirely prepared to make sacrifices and share the burdens”. Go tell that to the angry hordes gathering daily outside Tepco headquarters.

It’s possible the government will have to start cashing out their U.S. T-bills, which is a whole other story, since Japan and China have financed our government’s profligate ways for the past decade or so. One thing for sure is that foreign governments are not likely to rush into Japan with huge coffers of cash any time soon. The U.S. and European taxpayers are in no mood to spring for someone else’s Marshall Plan. And given their wretched history, China would be an unlikely savior for Japan, although strange things do happen.

To be fair, Emmott did get one thing right when he asserted, “The first, and most fundamental, lesson from other natural disasters is that the economy is the least important thing to worry about.” Under the circumstances, it’s not all that comforting a thought.
 



story | by Dr. Radut