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Friday, March 23, 2012

Re-thinking trade policy in an era of expensive energy

In an era of expensive energy, Japan's lack of natural resources and distance from markets (except China) are significant liabilities. Consider Morgan Stanley Ship Hauls Frozen Gas 14,500 Miles to Tokyo - Bloomberg:

"Japan’s gas-fired power plants are boosting output to compensate for nuclear reactors shuttered since last year’s earthquake, driving Asia-bound cargoes to a record. The U.S. has surplus natural gas extracted from shale rocks deep underground, and while it lacks a facility to liquefy that fuel for shipping, cargoes delivered to the country under longstanding contracts can be re-exported when overseas prices are higher.

“There’s a huge arbitrage,” Arctic analyst Erik Nikolai Stavseth said by phone yesterday. “When someone is willing to pay that much to move gas from A to B, it tells you demand is very strong.”"

Specifically, "One million British thermal units of LNG costs $17 in Japan and $2.62 on the U.S. Gulf Coast ."

At differentials that great, it's not inconceivable that the US could develop a trade surplus with Japan.




Monday, March 05, 2012

Japan's economic problems in summary

Chris Martenson has released an interesting essay Japan Is Now Another Spinning Plate In The Global Economy Circus and provides a neat summary of the issues the country is facing:





-The total shutdown of all 54 nuclear plants, leading to an energy insufficiency

-Japan's trade deficit in negative territory for the
first time in decades, driven largely by energy imports

-A budget deficit that is now 56% larger than revenues (!!)

-Total debt standing at a whopping 235% of GDP

-A recession shrinking Japan's economy at an annual rate of 2.3%

-Renewed efforts underway to debase the yen


Efforts to weaken the currency are unlikely to be successful because in particular the USA is pursuing the same strategy.

Martenson supports the thesis made previously here:


"It is a very big deal that Japan is slipping into negative trade territory for the first time in three decades. Last spring I was writing about how the global flow of funds -- the massive tide of liquidity sloshing back and forth -- involved Japan to a large degree. Japan was the hub of a massive carry trade, was buying huge amounts of US Treasurys and, in general, was a vast emitter of liquidity flows to the world.


With its reconstruction costs and now with its trade deficit, Japan becomes a net consumer of funds. In other words, the flow of funds reverses. This represents, at the very least, a change to the global liquidity tide charts."