Japan down for the Count

Debt Situation before this started
Before Japan experienced it’s worst earthquake since the early part of the 20th century, the Japanese economy wasn’t exactly doing stellar. Once an economy crosses the point where it’s debt is 90% of GDP many consider this the point of no return. Japan is over 200% of GDP and can only sustain itself due to the fact most the debt is held internal to Japan. If they have to go outside the country to source funds for their significant rebuild that 200% Debt to GDP ratio will definitely affect them.

Petrochemical Refining Capacity Reduced
Japan has now taken a blow that may take the Japanese a very long time to recover from and they will definitely never be the same. As I noted in an earlier post (see here) Rick Rule noted that Japan has lost an estimated 29% of their refining capacity. This would be a struggle for any country to recover from. Japan has strategic reserves which they have a sharing agreement with other countries in particular South Korea and New Zealand (see here), but their is no word whether those countries would come to Japan’s aid with any refining capacity, I can’t imagine they have much spare.

Inconsistent Power Grid
On the nuclear front Japan has been more severely affected than other countries might have been. Many have wondered how Tokyo has been affected so severely by the Fukushima reactors being knocked out, why don’t they divert power from other area’s? Well it’s a little known fact that, unlike in North America were all power operates at 60Hz, in Japan the country is split between 60Hz in the south and 50Hz in the North, Tokyo is part of the northern sector. (see here) This makes is very hard for Japan to adapt to a disruption to their power grid. In theory you could step the power up and down between the two area’s but this isn’t trivial when your talking gigawatts. Figures on how much power the northern area around Fukushima was supplying to the country range from 10-20%, combine this will 29% of refining capacity being knocked out to support other power plants and rolling blackouts could continue for some time.

Japanese Manufacturing
It is well known that Japan is very dependent on there exports to sustain their economy. Any food or produce exports will be toast, since everyone will be leary of taking any food or beverage products that originate from Japan. Their manufacturing is like much more severely affected and the true nature of this won’t be know for some time but we are starting to get a sense of the impact.

It should be expected that in order for Japanese manufacturers to stay in the game they will have to move manufacturing offshore in order to continue. The big question is will this manufacturing every be moved back to the mainland or will they head down a US style exporting of manufacturing jobs? The following article (link here) gives some early signs of the seriousness to Japanese manufacturing area’s such as the auto industry. Given the tightly integrated supply chains any small supplier can keep a car plant shutdown for an extended period of time. As mentioned in the linked article from yahoo news, companies as far away as Swedish car manufacturer Volvo are down to a weeks supply in some parts. Ford and Chrysler are planning on restricting car colours available due to a pigment plant being damaged in Japan. It’s estimated that the lost revenue to the Japanese auto industry due to the quake will be $1.4 billion/week. Estimates are it could be May or June before the supply chain gets back on it’s feet, meaning a easy $15 billion revenue hit to the Japanese auto industry alone. This doesn’t even get into the electronics that will be effected worldwide or the fact that major container ports have been damaged to get their products out if they could manufacture them.

Add to this the radiation fears and the fact that information is very slow to come out on the situation and one would think it will be very hard to get their manufacturing base and economy back online soon. 3 Mile Island and Chernobyl were understood after a couple days, for better or worse, what the situation was and how it would play out. It is unbelievable that with all Japan’s technology and advancement in robotics they have had to send as many humans into the radiation zone as they have. There is also the conspiracy theories that they aren’t telling all, due to the fact that it is much worse than is generally recognized. One fact that no one in Japan wants to discuss is exactly how many spent fuel rods are in the pools outside the reactors? It is also known that an Israeli company that was contracted for monitoring equipment of these plants has had all access completely cut off. Why would you do this unless you were desparate to control all information about the situation. Seems to support the conspiracy theorists.

One really has to wonder exactly how long Japan will be down for the count. It seems reasonable that Japan will never again be the country it once was, and will be changed in many, as yet, unforeseen ways. This all assumes events aren’t taken to the next level of a chain reaction.

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