The Post-Tsunami Forecast

Tuesday, March 22, 2011 2:15 AM

[Taki’s Magazine]

Have you been wondering about the after-effects of the unfolding disaster in Japan? Putting the enormous human tragedy to one side for a moment, can we make intelligent speculations about how the rest of the world will be impacted? We can try. Already, there have been some definite indications. Whatever happens, the massive 9.0 earthquake and subsequent tsunami in northern Japan will be a game changer. The reverberations will be felt across all continents, both negatively and positively.

Japan has been in recession for two decades; some commentators have called them the Lost Decades. Patrick Buchanan addressed this issue last week in Taki's Magazine. The proximate cause was a real estate bubble in the 1980's. Sound familiar? It is probable that the U.S. is headed for similar Lost Decades with artificially low interest rates, sluggish growth and enormous debt. Since the end of the 1980's, China has rushed to the forefront economically, along with other parts of East Asia. But in terms of finance and technology, Japan still remains a very important and unique asset to humanity as a whole. Ergo, it is a good bet that planet earth is going to be dramatically impacted by Japan's tragedy.

Offhand, my guess is that this means an uptick in world-wide inflation, especially in the U.S. Think technology in general; computers, automobiles and cameras in particular. They will all cost more. Why? First, consider the Yen. Curiously and counter-intuitively, its value is surging. Although a significant area of Japan has been devastated, almost obliterated, Japan's currency is on the rise. According to a report in the Financial Times on March 16th, Japan will need "to sell foreign assets and bring money home for reconstruction efforts following its earthquake and tsunami." 

Moreover, the major international insurance and reinsurance companies will need to purchase Yen to pay for local labor and locally-sourced materials to rebuild what has been destroyed. With the Yen becoming more valuable and with the production of high-quality goods interrupted due to power shortages and aftershocks, logistics and god-knows-what in terms of nuclear radiation, prices of everything exported from Japan will trend higher. Perhaps more production will shift to China in the long run. China could be a major beneficiary--especially if Japan comes to be viewed as an earthquake zone. 

Chancellor Angela Merkel has already temporarily shut down seven of Germany's 17 nuclear reactors in a knee-jerk response to the emergency in Japan. A decade ago Germany decided to go nuclear-free by 2020, based upon the apparent fact that German reactors are not quake-proof. As for the U.S., it long ago turned its back on nuclear energy. According to an article in the New York Times on March 18th, “Japan Crisis Could Rekindle U.S. Antinuclear Movement”, the last permit for construction in America of what became a fully operational nuclear plant was issued in 1978. So where does that leave us? By default, a revisitation to fossil fuels. 

The race will be on full throttle for petroleum, natural gas, coal and oil shale. In the U.S., that means Alaska, offshore California and the Gulf of Mexico. Russia, central Asia and Australia will be prime beneficiaries, along with the Arabs and Iran. The geopolitical, environmental and world economic ramifications remain unclear, but they will be momentous. 

And what about Iran, which has has been the centerpiece of American foreign policy in the Middle East for years? Could the nuclear emergency in Japan somehow change that situation?  Possibly. It could provide the leadership in Tehran with a convenient escape hatch to abandon its nuclear "ambitions". I'm not referring to Iran's nuclear weapons program, because I do not believe such a program exists. (I did not buy the lies that Iraq possessed WMD either.) I'm talking about Iran's stated goal to create nuclear power facilities to generate electricity. That undertaking is real, all right, and entirely normal in view of what France, England, America, Germany and Japan have done heretofore. 

Depending on how bad the situation gets in Japan in the weeks ahead, the Mullahs might conclude that nuclear energy is overrated, too risky and just not worth the trouble, after all. Please note that Iran has its own history of major earthquakes. The semi-official press in Saudi Arabia has already expressed alarm with the state of affairs at the Bushehr nuclear energy plant, alleging that the Iranian reactor is situated inside an earthquake zone and that "the technology employed is a mishmash of the new and the old." Bushehr was originally a German project started in 1975 under the Shah. Then the Russians were asked for help to finish it in 1995. Thanks largely to the U.S.-inspired sanctions on Iran, the project is still not operational.   

Should Tehran decide to abandon its quest for nuclear energy, it would undoubtedly ask that economic sanctions against Iran be lifted, pointing out that the alleged nuclear "threat" posed by Iran will have been removed. Washington and Tel Aviv might not agree, of course, but at least the idea of attacking Iran will then appear even more bizarre than it already is. A lessening of tensions would be the inevitable result. This would certainly be an upside for world peace and sanity in the region. 

Then there is the all-important iPhone and iPad. Although they were conceived at Apple headquarters in Cupertino, California, these must-haves are assembled in China, with some very critical, specialized components sourced from Japan. The components are not manufactured anywhere else in the world and, in some cases, are proprietary. Get the picture? 

It's a potential nightmare if the supply chain is short-circuited. Globalization is a great thing for the consumer, except when it's not. Aside from Taki and a handful of incorruptibles, we are all hooked on the wonders of the digital age. Cupertino may need to scale back and slow down, along with the rest of us. Welcome to the post-tsunami world.

--Copyright 2011 Patrick Foy--

Update I: “The Pompeii of the Pacific”, Der Spiegel April 12, 2011.