A documentary has been broadcast by Japanese TV network NHK in the last 48 hours which can suggest the situation in the Japanese economy and government. The situation appears very difficult and frankly impossible to manage.
The Japanese cabinet chief Yukio Edano appeared from Tokyo. The host was in one of the many coastal towns that were essentially wiped off the map by the earthquake and subsequent tsunami. Particularly devastated were the towns around Fukushima Daiichi nuclear power plant. Essentially, people are barely living and in deplorable conditions. Their homes are missing. They have junk surrounding them in 2-3 story piles and there is only food moving by donation. The economics of those areas are non-existant and the remaining families and businesses are fleeing in large numbers. Under these deplorable conditions, the city bureaucrats are drawing up plans on a state-wide basis to attempt reconstruction. Those plans are shown being reviewed and discussed. The initial estimates were in the hundreds of billions of yen for just one area.
The surviving residents are asking for the government to buy their land or permit them to rebuild. But, the elderly pensioners have no savings to rebuild upon. There are no businesses which can be leveraged since the fertile farm lands were destroyed.
My point in this posting is that the disaster from March 2011 in Eastern Japan has a real impact on productivity in the United States. I talked with several Toyota dealers in the last 30 days. They claim that North American production will come back on line by end of Summer. However, others are saying that the Plug-In hybrid Prius will not be available until mid-2012. That sounds more like a 2013 release. Meanwhile, GM's Volt is moving off the assembly line.
The point here is that Japanese productivity (GDP) can gain appreciably from a massive rebuilding effort in Japan. However, the Prime Minister's office in Japan can not figure out how to balance the issuing of massive amounts of Japanese bonds against the dwindling population and real productivity. The Japanese banks are in full retreat mode and they must finance 1-2 trillion USD's worth of reconstruction and rebuilding just to re-establish activity in the disaster zone. This planning can not occur until the effects of the TEPCO fiasco and the Fukushima radiation hazard is brought under control. The situation there remains tenuous at the plant with massive amounts of radiation in the environment. Plus, there is no word on assays for plutonium and uranium contamination in area around Fukushima Daiichi. There were clear signs of radioactive iodine and cesium in higher levels in the immediate 20 km to 30 km evacuation zone. Therefore, any recovery can not truly start for the billions of Yen worth of assets in those areas until the nuclear disaster is contained.
While Jim Sinclair and others argue that no further black swan events can be tolerated, it appears to me that the disaster has already occurred. The only issue is how bad the pain will be for the rest of the planet when a major G-8 country loses its financial foundation. Productivity was the backing of the Japanese economy, but by virtue of the disaster, it will not regain any stability in the next 10 years for that entire region of Japan.
Who exactly will be buying the 15 trillion in USD federal debt is beyond me. The Chinese may have 1 billion citizens but they surely have no interest in owning $2000 of USD debt per Chinese citizen. Moreover, why would the Japanese buy that debt in the current international disaster that is the bond market?
QE3 is a lock.
The only question is how much we allow the central bankers to steal from our families to finance their posterity instead of ours.