The previous post on Quantitative Easing takes on added dimension when the financial ramifications of the Japanese tragedy are understood.
This post by Mr. Schweizer outlines the additional pressures placed on what already appeared to be an intractable US financial problem. While our concerns should be with the Japanese people, we must be aware of the interrelatedness of events and how they affect financial markets around the world.
Posted by Peter Schweizer Mar 15th 2011
Japan is still trying to figure out the extent of the massive human toll of the tragedy that has befallen that country. The toll will reach biblical proportions. But in a few weeks they will need to begin charting plans to rebuild. Japan’s financial house in not in great shape, so they will need to borrow capital, plenty of it. But how much will be available? There is also speculation in Japan that to finance the rebuilding, Tokyo will sell off a portion of its huge holdings of U.S. Treasuries to cover the cost.
Guess what? There is almost $1.8 trillion in US Treasury debt maturing this year. Fully 50% of American debt comes due in the next three years. Governments such as China have already indicated that they are will interested in buying U.S. debt than in the past. And if Japan sells off a portion of its US debt? We need to be concerned about the human toll right now. But pretty soon we will need to confront the reality that the Japanese catastrophe and the American debt crisis may collide on international financial markets. It’s just another reason we ought to be ashamed of ourselves and get our fiscal house in order. Japan is going to need to borrow heavily because they just got hit by an earthquake and tsunami. What’s our excuse?
How long will it be before Keynesians suggest that additional QE is required to make up for the shortfall in world demand that results from the Japanese tragedy?