Sendai, Japan Disaster – updates on economic and financial aspects

Japan Earthquakes 3-13-2011 11-29-13 AM

Image by Kevin Krejci via Flickr

Right now the dominant news coverage deals with the nuclear and radiation issues that are hindering the response.  Regarding the recovery phase, most of the news reported comes from financial experts. I have not seen any significant interviews or articles that provide insights or analysis from major historic earthquakes and successful recovery from them.  Many dimensions of recovery are not being considered, other than financial. And few media types seem to understand of the complexity or actual duration of the recovery process.  See the “Worth Reading” page on this blog, which is my attempt to highlight some useful documents for consideration.

Discussion of the likely sources of recovery funds, from the NYTimes today. Japan’s Government Likely to Bear Much of the Loss

Apart from an expected $35 billion in insurance claims from last week’s earthquake, the financial losses in Japan will probably fall most heavily on the Japanese government once it tallies the damage from the tsunami and the nuclear disaster.

The extent of insurance coverage is not as great as in the Tokyo area; nor is it as high a ratio as is true in New Zealand.  But the coverage is far greater than that in the U.S.

March 14: The Diva did a brief TV interview on CNBC this morning, where they were interested in the effects on the business and financial communities, as might be expected. (The video clip is now available.) Presently, I am thinking about the upcoming federal National Level Exercise regarding a New Madrid earthquake, planned for May.  To date most of our thinking in the U.S. about recovery has not been broad gauge enough; we should be thinking in terms of events of the size and destructive possibilities of the Tangshan, China (1978), Christchurch, N.Z. (2011), and the current Sendai, Japan events. I plan to provide more details about the first-mentioned in subsequent posts.

March 13:  Disaster recovery has many essential ingredients, two of which are business and financial recovery.  Here is my take on some key business and economic issues/concerns that I have gleaned from secondary sources on the catastrophic events in Japan:

  1. The earthquake, tsunamis, and other cascading events (damage to nuclear power plants) combined resulted in a catastrophic disaster, which probably will be the costliest one Japan has ever experienced. This sequence of major events is unprecedented and quite scary.  Altogether, the compound of events poses the greatest challenge Japan has faced since WWII
  2. The recovery period will begin soon, although completing the damage assessment and cost estimates will take more time than usual.  The recovery process is likely to divert resources away from manufacturing. It no doubt will entail making some major decisions about the future of the country. Plus, it will take decades to accomplish.
  3. Insurance and reinsurance. Earthquake and fire insurance coverage is common for residential and commercial structures, although fewer policies are in place in Sendai than is true in the Tokyo region, which is (was) considered the highest risk. The major reinsurers (Lloyds of London, Munich Re, Swiss Re) expect to make payouts in Japan.  These same companies also provide insurance in New Zealand.
  4. For American business owners and consumers, interruptions in supply chains might occur; e.g., computer parts, chips, cars etc. Sendai is not an industrial hub, like Kobe. But ground transportation and communications have been disrupted in many areas of the main island.
  5. Possible relocation of residents and structures in Sendai and around the failed nuclear power plants.  Similar to the decisions made about downtown Christchurch, N.Z. Already consideration is being given to not rebuilding in place many of the past structures and systems in the most vulnerable seismic areas. Decisions about the power plants remain to be made.

Reuters news service has done an interesting special report, on March 13, titled Japan Quake Unlikely to Shock Economy. The analysis is thoughtful, citing quite a few economists who have studied the economics of disaster recovery. Yet, despite the optimistic sounding title, the article lays out some serious negative considerations re the Japanese economy with respect to the essential requirements for an effective and efficient recovery.

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