Tuesday, March 15, 2011
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Trouble in Japan
This article won't discuss current events. The catastrophic earthquake, deadly tsunami and nuclear disaster are covered extensively by every news source on the planet. Deservedly so, as tragedies of this magnitude are rare indeed.
Here we're going to take a look at the nation's economy, which has been struggling at best to survive these past few decades. Will this disaster ring the death toll for such a fragile system?
Despite their turmoil, Japan held the number two position in the world's economy until second quarter 2010 when it lost its place to China. The U.S. remains number one.
Japan's proud heritage is one of the earliest known to mankind. Its recorded history can be traced back to over 1600 years, back to the days of Samurai clans and Shogun dictators. These clans ruled up until the middle of the 19th century.
The Meiji era in the 1860s brought an end to the Shoguns. Their rule transformed the island nation into a world power to be reckoned with.
Japan took an aggressive role in the 20th century. Their military strategy was designed to expand the empire. The country began conflicts with China and Russia, and gained control over Taiwan and Korea. Their expansion was a concern to world nations, prompting a U.S. oil embargo in 1941.
The embargo provoked Japan, leading to the bombing of Pearl Harbor. See our December 7th issue of GCFlash for an in-depth look.
As we know, World War II ended when the U.S. dropped an atomic bomb on Hiroshima and Nagasaki in August 1945. With it came the end of Japan's imperialist dreams.
In their place grew visions of a global economic force.
The U.S. occupied Japan for seven years following the war, providing $2 billion in food, fertilizers, petroleum products and industrial materials to rebuild the nation we left in ruins. We were also to provide military protection if necessary, as the World War Peace Clause prohibited Japan from maintaining their own military.
With U.S. aid and no need for defense spending, the Japanese economy started to grow. Families were able to boost their savings accounts, banks in turn financed businesses at low rates of interest.
Japanese technology is unparalleled. Their manufacturing sector led the country's resurrection from ashes. First it was automobiles and consumer electronics, then expanding to provide services to the rest of the world. Exports were the financial backbone of Japan.
The country's low unemployment rate kept the economy growing until the global economic downturn of the '80s. The government tried to stimulate the economy with deep rate cuts, leading to a strengthened stock market and increased real estate market.
Concerns over the financial bubble caused the government to further raise rates. Yet they couldn't prevent the inevitable. The bubble burst in 1990. Stock prices crashed. Real estate prices plummeted. GDP stagnated, turning negative in 1998.
Unemployment rose. Loans went into default. Unprecedented levels of bad debt, declining stocks and real estate losses nearly collapsed the financial system.
The government initiated a stimulus package to inject funds into a fragile economy. Short-term interest rates were reduced.
Once again, exports led the country to recovery. They had weathered the storm.
Or so they thought. Enter a world financial crisis originating in the U.S. in 2006 and once again Japan's economic structure is under siege. Declines in its export sector and downturn in business investments brought recession to the country.
A revived global economy strengthened Japan's export sector. By first quarter 2010, the economy appeared to have recovered.
Now this. Just how much more can this economy sustain?
The damage may not be insurmountable, as it was still in recovery-mode and not fully functioning. The less you have, the less you can lose.
But the automobile industry will take a real hit. And that's what has kept them afloat. Toyota and Nissan both have several plants in the quake area. Honda only had two, but still shut down operations throughout the country. With transportation disrupted, they can't move the vehicles coming off the assembly line.
Parts suppliers dominated the region as well. It will take time to source new parts once the automakers do resume production.
Production disruptions have led to the steepest tumble in Japan's stock market in over 25 years. The Nikkei 225 has fallen 17.53 percent in the last two days, causing a ripple effect throughout all major world markets.
We won't know the full extent of the damage, both physical and economic, until the nuclear situation is resolved.
But there's one thing we can bet on. That is, the intellect and pride of the Japanese people.
These are a people with a long history of conquering catastrophe. Overcoming events of such magnitude will not be quick or easy. They're still digging out from the rubble. But they will survive, even prosper. We can all learn much from their example.
Happy Birthday Ronny!
It isn't often that one leaves such a mark on society that we celebrate their 100th birthday long after they're deceased. Yet Ronald Wilson Reagan was one of those rare individuals.
The son of John Reagan and Nellie Wilson, Reagan was born February 6, 1911 above the general store in Tampico, Illinois.
His sports prowess earned him a place at Eureka College. He studied economics and sociology, but it was football and swimming that forged him.
Reagan's first stint after college was as a sports announcer for radio station WOC in Davenport. He moved on to station WHO the big city of Des Moines in 1933, where he was acclaimed as one of the most popular sports commentators in the region.
Bit by the acting bug, he moved to California in 1937. His screen test with Warner Brothers earned him a seven-year contract. He appeared in ten films between 1937 and 1940.
Reagan joined the Army Air Corps when the U.S. entered World War II, where he made training films for pilots. He resumed his film career after his December 1945 discharge.
A member of the Screen Actors Guild (SAG), the charismatic Reagan was selected its president in 1947. The liberal Democrat found himself in the midst of controversy when the House of Un-American Activities Committee targeted the motion picture industry. The threat of Communism was still strong.
During this period, 320 people were blacklisted from the entertainment industry. These were folks accused of holding left-wing views. Among the most notable were Joseph Bromberg, Howard Da Silva, John Randolph and Charlie Chaplin.
As president of SAG, Reagan refused to support the accused actors. It enabled him to continue working in Hollywood. He appeared in 53 movies and later television.
He switched to the Republican Party after the war, supporting Dwight Eisenhower in 1952 and 1956, and later Richard Nixon. He became a political figure on his own in 1964 after giving a televised speech in support of Barry Goldwater.
He took office as the 33rd Governor of California in January 1967, holding the seat until January 1975.
He lost bids to run as the Republican presidential nominee in 1968 and 1976. But you can't keep a good man down. He won both the nomination and election in 1980 and enjoyed a landslide victory in 1984.
After being on the job for a short time, federal air traffic controllers went on strike despite a regulation prohibiting government unions from striking. Reagan called their bluff, giving them 48 hours to report to work or forfeit their jobs. The 11,345 controllers who ignored his order were terminated.
Reagan gained much respect in the private employer community by his actions. They seemed to contrast his previous role as president of SAG, yet he didn't let his personal convictions stand in the way of national security.
America faced troubled economic times in the early 1980s. During Jimmy Carter's last year in office, inflation averaged 12.5 percent.
Reagan proved he was the man to tackle tough jobs with his supply-side economic policies, popularly known as "Reaganomics."
He proposed that economic growth would occur when marginal tax rates were low enough to spur investment. In turn, this would lead to increased economic growth, higher employment and wages. The inflation rate dropped to 4.4 percent by the time Reagan left office.
He beefed up the military with his "peace through strength" policy while cutting the budgets of non-military programs, including Medicaid, food stamps, and the EPA. He protected Social Security and Medicare.
Reagan's Job Training Partnership Act of 1982 was a major part of his job creation program. Despite reaching a high of 9.7 percent in 1982, the average unemployment rate dropped from 7.1 percent to 5.5 percent during the Reagan years.
Ronald Reagan is remembered as being one of the most influential and successful presidents this nation has seen. He remains a model for all who will ever follow in his footsteps. Reagan lost his battle with Alzheimer's disease on June 5, 2004.
The Federal Open Market Committee, or Fed, met Tuesday saying that the economy was "on firmer footing" while pointing out that the rising costs of energy and food are potential catalysts for inflation. With all the uncertainty surrounding Japan and possible nuclear meltdowns, it's not surprising that the Fed made no changes to the current policy.
The Fed unanimously agreed to continue the purchase of $600 billion of longer-term Treasury securities by the end of the second quarter of 2011 as announced in November. This is designed to "promote a stronger pace of economic recovery and to help ensure that inflation" remains gradual and constant. The Fed said that long-term inflation is expected to be stable and "measures of underlying inflation have been subdued." So, interest rates controlled by the Fed were not raised.
Slow economic growth continues as the U.S. economy expanded at a 2.8% annual rate in the fourth quarter. Although the slow growth is as predicted, a little faster increase would help to decrease unemployment more quickly!
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