Slowed but Not Derailed: Global Events' Impact on Oil, Supply-Chains, Fund Flows
Brown, Scott, ABA Banking Journal
Japan's earthquake/tsunami/ nuclear tragedy and heightened tensions in the Middle East and North Africa have led to some concerns about the global economy, and in turn, the strength of the U.S. recovery.
Assessments of the damage from Japan's earthquake and tsunami will become clearer over time, although the situation at damaged nuclear reactors is more uncertain. The disaster is a major setback for Japan's economy, but natural disasters are typically followed by a period of rebuilding. More immediately, trade and supply-chain disruption will ripple around the world, although the impact on aggregate global growth is likely to be small. Before the quake, Japan was viewed to have a relatively high degree of excess capacity. In the weeks ahead, we can expect to see other parts of Japan making up a large part of the output lost in the damaged region.
Problems with the nuclear reactors may compound Japan's recovery. Rolling blackouts could lead to supply-chain problems more broadly. It may also shift sentiment about nuclear power in other countries, adding somewhat to the price of oil over the long term.
Is there a danger that Japan will dump its holdings of U.S. Treasuries to fund reconstruction? Not likely. Japan has a huge ratio of public debt to GDP, but also a very high private savings rate. …