Saturday, March 12, 2011

How Japan will battle the economic shock

These are difficult days for market economists. Like the rest of us, they stare in awe at the video of a raging river where none should be, consuming Japanese coastal communities and sweeping over the countryside. They know the death toll will climb into the thousands.

But they can’t really get into that. They have to assess how the earthquake and tsunami will affect the Japanese economy, the yen and global financial markets.

Sometimes they -- and those of us who seek their counsel -- try too hard.

“Some idiot told a reporter the percentage of Japan’s GDP that was generated by Sendai’s economy, and the teen-aged scribbler then published that number as an indicator of the economic risk,” Carl Weinberg, chief economist at High Frequency Economics, said in his morning note to clients on Friday. “We do not know what we do not know about the damage that has been done. Experience tells us that the economic shock can be, and likely will be, much bigger than anyone can imagine.” (read more)