In contrast to my earlier blog post that some investors might be positioning themselves for a rebound in the Japanese stock market, High Frequency Economics takes a more cautious approach - at least on Japan's economy.
Carl Weinberg, chief economist, noted that the economic consequences following the Japanese earthquake and tsunami are unclear at this point. While the government tries to control the crisis surrounding some of the country's devastated nuclear plants, Japan's capacity to generate electricity has been reduced by as much as 40 per cent and will be limited to 80 per cent of its pre-crisis potential for a very long time.
Indeed, he argues (in his words) that "we have yet to experience all the financial dislocations from this disaster," pointing to the vast number of displaced people who likely won't be making payments on their mortgages, car payments and credit card bills any time soon. On the corporate side, many companies will be unable to pay their suppliers or service their bank debt. And this has an impact on the banking sector, too, of course.
This is bad for any economy. But for Japan's heavily indebted economy, its a big, big problem.
"A financial system built on debt is a fragile stack of cards," Mr. Weinberg said in his note.
David Berman