Monday, March 14, 2011

#Japan #Earthquake: Cost Could Be $1 Trillion Over Several Years

That's what I was thinking all along. $1 trillion loss, and 100,000 people dead (if not more).

From Reuters (3/14/2011, emphasis added; whole article at the link):

(Reuters) - Quake-hit Japan faces a recovery and reconstruction bill of at least $180 billion, or 3 percent of its annual economic output and more than 50 percent higher than the total cost of 1995's earthquake in Kobe.

Even though some extreme projections of the longer-term cost look at figures closer to $1 trillion over several years, more standard tallies akin to those used after the Kobe quake hover around this level.

....The Kobe earthquake is estimated to have cost $115-118 billion, or 2 percent of GDP in 1995 terms. This time -- in a still unfolding disaster -- initial estimates from Credit Suisse and Barclays put the cost at $180 billion.

Mitsubishi UFJ Securities and Sarasin expect the cost could run as high as 5 percent of GDP.

....Insured losses from Japan's earthquake could be as high as $35 billion, even without tsunami and nuclear related losses.

....Some estimates of the reconstruction shoot far higher than these consensus forecasts as economists take into account the potential need to replace the country's devastated capital stock over a longer timeframe.

Vanessa Rossi, senior research fellow at London-based think tank Chatham House, estimates that 10 percent of Japan's capital stock was lost in the earthquake, which equates to around 20 percent of the country's GDP, or $1 trillion.

"The bigger cost is rebuilding of capital stock. This type of problem really causes damage to capital stock. There's enormous damage to infrastructure -- installations, power plants, housing, factories, ports, coastline," Rossi said.

"You couldn't possibly rebuild so extensively in the period of 1-2 years. I expect it would be 4-5 years of work."

She said Japan's rich private sector was likely to supplement the debt-ridden government by selling its overseas assets and possibly using foreign exchange reserves, which could weigh on international markets.

That's what I was also thinking: use of foreign exchange reserves. Japan owns $882 billion US Treasuries. A good start. Dump those euro bonds, too. The size of Japan's foreign reserves at the end of February 2011 is $1.091 trillion.

Maybe it's time for Japan to stop being a good "responsible global citizen" who accommodates requests and demands from the debtor nations of the world, and think of itself and its citizens FIRST.


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