How to Measure the Financial Impact of Japan's Earthquake

Last Updated Mar 14, 2011 2:51 PM EDT

Much ink and many pixels have been deployed analyzing the financial repercussions of the devastating quake and tsunami in Japan. Here are a few of the more incisive and interesting writings on the topic from around the Web.
Over at the Big Picture, Bill Witherell, chief global economist at Cumberland, has a good comparison of the economic impact of the 1995 earthquake that struck Kobe, Japan, with the current disaster centered in Tohoku. Witherell notes several positives, including that the areas affected in the current quake are much less industrialized than Kobe (those most impacted by the Kobe earthquake accounted for 12.4 percent of Japan's GDP in 1995, while those in the current calamity constitute approximately 7.8 percent of GDP). He also points out that:
"In 1995, the Japanese economy had considerable spare capacity that could be used to offset the reduced production from the area affected by the quake. That situation is also present today in Japan. While the Japanese economy expanded at a 3.9% clip last year, better than many other advanced economies, it remains well below full-capacity production levels."
But overall, Witherell says that he does not expect investor and consumer confidence to recover rapidly, concluding that "eventually this market will likely offer a buying opportunity, but it is far too soon to judge when that will be the case."

At Time.com's Curious Capitalist, Michael Schuman calculates that the Tohoku quake could end up being the costliest earthquake ever in dollar terms, not counting the loss of human life. One consulting group estimated that insured property losses from the calamity could reach as high as $35 billion, making it the second-most expensive natural disaster ever, after Hurricane Katrina. And another firm estimated that total losses to home, factories, infrastructure and other property could exceed $100 billion when the final tallies are made. Sobering stuff.

Finally, at the Nieman Journalism Foundation's Watchdog blog, former longtime New York Times business writer David Cay Johnston asks and attempts to answer a few questions that business writers should be seeking to explore. The answers are illuminating for everyone else, though, too. Among the questions he raises are how will Japan finance its rebuilding (answer: by borrowing more money and then servicing this debt with higher taxes), is Japan like Greece (not at all because Japan has a much better tax collection system than Greece, and also because it has control over its own currency), and what will rebuilding Japan mean for America's economy (Johnston says dispassionately that it will lead to more jobs in the U.S., at least temporarily, as Japan's auto industry retrenches and the country increases its imports in order to rebuild). Check it out.

If you've come across other good articles and posts about the financial implications of Japan's disaster, please share them in the comments field below.

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