Disaster Feeds Back into Global Financial and Energy Crises
Few people realize that before this human and economic disaster occurred, Japan was just facing up to the fact that it is facing a terrible fiscal and demographic crisis.
Only last month an official of the International Monetary Fund repeated a warning that Japan had to turn around its deficits which are now the highest in the world excepting Zimbabwe. In addition, the country's debt rating was lowered a notch by Standard & Poors as the risk is increasing that Japan may someday default.
This is the fiscal backdrop for Japan when its government embarks on a massive new spending response to the disaster this week. Whether the country really does have the option to do even more deficit spending remains to be seen, but it is likely the apparent desperation of Japan's stimulus spending will add to the perception that the world financial system is on an even weaker footing.
Japan is also an old country. It now has a median age of 45 years old, the oldest in the world. With the effect of a decreasing population (1/4 fewer people by 2055), falling tax revenues, lowered productive capacity and ever increasing demands on savings and entitlements, it will be extremely difficult for aging Japan to turn around its deficit problem. Becoming even less productive as the median age gets even older, Japan will likely be drawing on its foreign reserves to meet savers redemptions and most of those lie in the United States. In this way, Japan's fiscal crisis will someday limit the US's ability to finance its own deficits. A someday that may be beginning today. An ugly circle indeed.
Japan was perhaps the most prepared of any country to deal with problems at its nuclear power plants but not to this extent. Most countries don't have to build nuclear power plants in an active earthquake zone like Japan does, but they clearly didn't allow for the twin disasters of an 9.0 earthquake followed by a tsunami that wiped out the power plants generators and thus its cooling system. This was a highly unlikely event, but it happened as the unlikely often eventually does.
Hopefully the nuclear reactions will be contained but it is a sure thing that the reaction of the nuclear power naysayers will be shrill and vocal like they did in the aftermath of Three Mile Island. The evidence shows that not one person died as a result of that accident back in 1979 and there haven't been any other accidents since, even though 20% of our electricity comes from nuclear power and no other power source has been as clean and reliable either. Despite those facts, no nuclear power plants have been built since Three Mile Island. On the other hand, since 1979 no one knows how many lakes have died from acid rain, mountains denuded by strip mining or people's health harmed by the sulphur emissions from coal fired plants that could have been replaced with nuclear power
The US and the world are entering an energy crisis. It is obvious at the gas pumps. In the near future, electrification of our transport system will be increasingly important as a real substitute for oil powered motor vehicles. But solar panels won't recharge your electric car at night. How is the switch to electric going to be possible without nuclear power? That will be the question to ask the naysayers as they have their day this week. Which lessons the world takes from Japan's nuclear crisis will have huge repercussions in the future, probably even bigger than the carnage from the disaster itself.
Footnote Monday March 14: The anti Cramer would disregard the real Cramer's rant today that nuclear power is finished in the US. How you can replace that electrical output with volatile natural gas isn't fathomable never mind the vast number of new plants being built overseas. The hysteria has created some nice opportunities in the nuclear industry sector of the market the past two days.
