Japan Is Now Another Spinning Plate in the Global Economy Circus

[GliderGuider]

[div class="excerpt" style="border:solid 1px #000000"]Japan Is Now Another Spinning Plate in the Global Economy Circus

Japan is like the world’s largest petri dish, and the experiment at hand is about what happens to an advanced, industrialized economy when its electricity production is cut. As always, our view is that energy is the master resource. Our observation is that complex systems behave in unpredictable ways when starved for energy, but directionally, they tend to shrink and ‘simplify.’

Electricity is a critical form of energy, and thus the amount of electricity produced and a country’s GDP are very highly correlated. Sure, there is always some easy conservation that can be done that would allow an electricity shortfall to be met without any serious economic impacts. Street lights can be turned off, air conditioning and heating can be moderated, and other low-impact conservation efforts can reduce electricity consumption without doing much more than lowering utility revenues. However, there is a certain point beyond which conservation can do no more and electricity restrictions begin to bite into economic activity. Plants end up running slower or even shutting down, productivity declines, and work can stagnate.

Before the Fukushima disaster, Japan relied on nuclear power for 30% of its total electricity production. As of March 26, 2012, that number is going to be 0%. If you are thinking that shutting down some 30% of a nation’s electricity production capacity is an extreme move, you are right.

Japan is facing a summer of extreme electricity shortages, and this will impact the economy quite significantly. With shortages of as much as 25% of peak load, imports of oil and gas running into the trillions of yen, and consumers facing as much as a 20% hike in their electricity bills if the import costs are entirely passed along, it is clear that a serious challenge looms for Japan, especially this summer.

I agree with shutting down the nukes. Philosophically I'm also OK with seeing the GDP of a major industrial player hit the skids. However, if the Japanese economy takes the kind of hit that Martenson expects, the pain won't be abstract. The coming economic tidal wave could easily dwarf the tsunami that triggered it, and the waves could wash up at our feet at the same time as the Eurozone implodes. That is a distinctly uncomfortable prospect.

[Yo_Mama]

1. It's pretty accurate

The negative trade balance is beginning to reduce the yen, so there is some negative feedback into this loop. That, in this context, limits the economic fall. As the yen drops it helps exporters.

But Japan's overall debt is so high that it literally cannot afford to spend a lot of money on a new power infrastructure, but yet it must. The whole reason that it went nuclear in the first place was that it had no other option to fully industrialize, and the 70s fuel crisis hit Japan hard even so.

Last year Japan dealt with the power shortage okay, but this year some of the regions companies shifted production/operation to are hit as well. Energy costs to the public and producers have to rise sharply, and right now they are also debating a 5% sales tax increase to try and fund some of the reconstruction efforts. That endeavor will probably put the new PM out of office.

Japan is falling to bits right in front of our faces.

If they build fossil fuel plants, they can keep things running but everything is going to cost more. If they don't, and they try to go renewable, everything is going to cost even more than with fossil fuel plants. They have to raise taxes yet raising taxes and energy costs at the same time will put the economy into an even deeper tailspin.

Another point to remember about Japan is that its economy is already pretty energy efficient, so it has a harder time trimming energy usage.

[OnlinePoker]

2. Japan's population is aging dramatically

It's estimated that due to demographics, by 2050 the population will have dropped from 125 million to around 95 million. Of that population, 40% will be above retirement age. With so many aged requiring care, where will the workers come to run the manufacturing plants? Mass immigration is unlikely as the Japanese remain very much an isolationist country in that regards. Presumably, with 25% less population, you would need 25% less electricity, but even there, replacement power plants still have to be funded and built. Where is the money going to come from in a country that already has a national debt of over 200% of GDP?

[Yo_Mama]

3. And needs a massive amount of funds for rebuilding

I have no idea where the money comes from. Japan's debt is mostly held internally, but once the older people start drawing out their funds for retirement on net, clearly it will implode.

And running a trade surplus helped Japan support the debt. The need to import fuel is going to sap their economy.

In fact it's a lot of the electricity is used for production/infrastructure (like trains). There are stats in this brochure. A lot of companies have produced their own electricity, and probably that will expand:
http://www.fepc.or.jp/english/library/electricity_eview_japan/__icsFiles/afieldfile/2011/01/28/ERJ2011_full.pdf

[NickB79]

5. Japan is working on developing home health care robots

As a solution to the problem of who will care for their aged population: http://newsdesk.org/2010/09/robots-seen-as-solution-to-japans-aging-shrinking-population/

If that happens, I don't think your assumption that the country will require less electricity as the population declines will hold true.

[Yo_Mama]

4. 5 billion USD in January

http://www.bloomberg.com/news/2012-03-07/japan-posts-record-current-account-deficit-on-energy-costs-1-.html

This is more than three times higher than the January 2009 previous record monthly deficit, and the major change is energy imports.

The shortfall was 437.3 billion yen ($5.4 billion) in January, the finance ministry said in Tokyo. Energy imports led the gap, highlighting the challenge for manufacturers that ended 2011 in better shape than previously estimated -- separate data today showed the economy shrank less in the fourth quarter than the government initially calculated.