Friday, April 8, 2011

The drip, drip, drip of trickle down economics! (Video)

With the potential for higher interest rates in the U.S., higher commodity prices globally, a weaker dollar and manufacturing disruptions due to a shortage of components for products, the Japanese earthquake,/tsunami/nuclear crisis triple-play may wreak havoc on the U.S. economy! (Video commentary from Chris Martenson below)

There are still enormous numbers of questions and limited answers to the ultimate impact the disaster in Japan may have on the global and U.S. economy.

Will there be a spike in inflation, a crippling and costly rise in interest rates, a slowdown in manufacturing due to a shortage of components and parts with a commensurate drop in economic activity and GDP? This will play out as we move forward, but an impact is already being felt.

U.S. Dollar update

“… And of course we still have the issue of America's troubling fiscal position and what the ongoing budget fight says about the ability of Republicans and Democrats to work together to solve big problems as the 2012 elections loom.

The U.S. Treasury has said it will hit its debt ceiling by the end of May. A failure to raise the debt ceiling would ignite financial panic and result in a de facto debt default by the U.S. government. While members of both political parties seem to understand the risks of inaction, the market is already pricing in trouble. U.S. credit default swaps are up nearly 12%. Bad news.

This means we could be looking at a weak dollar for three more years. The implications are manifold. Consumer spending will continue to take a hit as a weak currency increases import prices. Crude oil will stay high. Inflationary pressures will continue to build. And U.S. stocks should continue to underperform foreign equities as investors look to park their cash in assets denominated in strengthening currencies.

With the dollar now in free fall, investors are seeking refuge in precious metals, crude oil, commodities and emerging-market equities…” (MSN Money)

Examples of the earthquake/tsunami effect

"Technology prices are set to rise after a chemical plant damaged by the Tsunami has been highlighted as a core producer of a unique resin used by nearly half of the world's semiconductor manufacturers." (The Cutting Edge News 4/4/11)

"The March 11 disasters destroyed parts factories in northeast Japan, causing severe shortages for Toyota and other automakers. A nuclear power plant was crippled by the tsunami, and others were forced offline, causing an electricity supply crunch in the Tokyo and neighboring areas that is expected to continue for months.

The parts crunch has been felt around the world, from Malaysia to the U.K. to the United States. Industry analysts and U.S. dealers have said the auto plant shutdowns will cause shortages of some models, especially small and midsize cars, in the coming weeks

Some Toyota dealers in the U.S. said the popular Prius hybrid is now scarce because of high demand and the factory outages in Japan." (MLive 4/8/11)

Some Business Disruptions (Congressional Research Service)

• A Hitachi factory north of Tokyo that makes 60% of the world’s supply of airflow sensors was shut down. This caused General Motors to shut a plant in Shreveport, Louisiana for a week and Peugeot-Citroen to cut back production at most of its European plants.

• Two Japanese plants accounting for 25% of the world’s supply of silicon wafers for computer chips were closed.

• A Toshiba plant making liquid crystal displays was damaged.

• Texas Instruments had to close a factory in Japan (until September 2011) accounting for about 10% of its revenues.

• Hitachi Vehicle Energy, Ltd. announced it intended to resume production on March 28 of lithium ion car batteries at its Ibaraki prefecture facility.

• Nippon Chemi-Con Corp., the largest producer of aluminum electrolytic capacitors used in everything from computers to industrial equipment, has four Japanese factories that are down, so it intends to boost production at ten overseas bases, including factories in Indonesia, Malaysia, and China.

• Nihon Dempa Kogyo, the second-largest maker of quartz components (with a roughly 20% share of the global market), is turning to operations in Malaysia and elsewhere to compensate for damage at its plant in northern Japan which assembles quartz components for automotive applications.

• Nissan is considering importing engines from its plant in Tennessee because its engine factory in Fukushima prefecture has been damaged.

• Japan's major automakers are expected to produce about 400,000 fewer vehicles domestically as a result of the earthquake and tsunami.

• Delta Airlines, the largest foreign carrier in Japan, is cutting capacity to and through its Tokyo hub by 15% to 20% through May and expects the crisis in Japan to reduce profits in 2011 by $250 million to $400 million.

The long-term effects are impossible to predict but Chris Martenson says a global liquidity crisis is a definite possibility!

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