As I had feared, the more time goes by the worse the news out of Japan gets. The earthquake was upgraded to a full 9.0 and data shows the main island of Japan moved 8feet and the axial tilt of the Earth may have been changed by 4 inches. The power involved in such a thing cannot be grasped in any reasonable way.
For a visual aid, here is an old picture (found at this site) which shows a fence that was moved 8 feet during an earthquake near the San Andreas fault in California in 1906:
Of course it was not long before some Keynesian asshole had to go ahead and try to paint a terrifying tragedy as a way to stimulate an economy(via Mish). One has to think Keynesians would support firebombing entire cities to foster growth they are so stupid it hurts to even have to deal with them:
“This is a Keynesian stimulus program that nobody can argue with: just rebuilding the city of Sendai,” said Marcus Noland, deputy director of the Peterson Institute for International Economics in Washington, co-author of the 2001 book “No More Bashing: Building a New Japan-United States Economic Relationship.” “Rebuilding Sendai could actually be an opportunity to try to create a growth pole in northern Japan.”Makes me sick.
Stoneleigh of The Automatic Earth has experience in the nuclear safety area and so if you want a full run down on what to be thinking about concerning the nuclear issues facing Japan (and by extension the environment) please stop on over and read today's piece:
How Black is the Japanese Nuclear Swan?
Economics of the Disaster
Reader Gawains had a comment that was right in line with what I was thinking over the weekend:
This will have a serious impact on financial markets. The yen is a widely circulated currency. Now it's going to have to come home to finance the rebuilding effort. Japan, which is the second largest holder of US treasuries, will probably have to start selling them in order to raise capital. That will have a profound effect on the US economy, and interest rates will necessarily rise.
I happen to think they're been too low for too long, but a forced increase is going to cause major disruptions in the markets.
I may differ with Gawains as I do not think Japan will have to sell Treasuries. They are serial money printers and will issue debt, not raise cash via sales. I could be wrong. What will happen is that Japan will need to crank up funding and this will compete with US debt sales as well. There is only so much liquidity out there and massive debt sales by Japan and our own will strain things a bit.
I penned an article last week showing why Quantitative Easing 3.0 was on the way, and I mentioned that time scales would be compressed. Well ramp that up. The FED will have to continue their buys of paper now, it is almost a sure thing. What will be interesting is that I was thinking the FED would move to municipal debt, mortgage paper (again) and maybe some other junk bonds, but now US Treasuries may be where it is at by necessity. What a mess. Maybe Bill Gross is throwing things at walls this weekend after dumping all of is treasuries?
I have no idea what the short term effect on the gold/silver complex will be. Longer term it seems very favorable as the expansion of paper promises for debt will explode going forward:
-Japan need big money
-The USA needs huge money
-Europe need big money for the rapidly deteriorating debt situation there
That's a lot of paper coming online.
I have a few plans for trades this week but I am not going to write about them as they were not my own, I am mooching off of chessNwine! I am working up some ideas I had tonight and will update later if need be.
Have a good night.