Japan - the economic fallout from the disaster!

It is worth examining what could happen economically in the days to come. There will be a massive rebuilding effort, no doubt successful, just as Japan did in the aftermath of the Second World War. That will lift Japan’s GDP over time.

However, in the short-term, there will be factory shutdowns. There could add to a shortage of some critical parts, particularly related to electronic products, and thereby lift inflationary pressure for these goods worldwide. Less nuclear energy usage will mean more oil consumption, which could also add to inflationary pressure on energy products.

The money for rebuilding will be from government borrowing. Japan already has one of the highest government debts in relation to the economy, measurably higher than the national debt in the U.S. But unlike America, most debt borrowing is from Japanese citizens. So in a sense Japan owes money to the Japanese. In America, about 40 percent of the debt is held by foreigners, which despite creating lower debt than in Japan, makes it more alarming. Eventually, more borrowing by Japan will mean less total global savings to purchase U.S. debt. That means the U.S. government will need to offer higher interest rates to borrow once Japan slowly regroups and recovers.