In the wake of the disaster of the 9.0 earthquake and the tsunami that followed, as well as the nuclear reactor accident at Fukushima that was a result of the tsunami, Standard and Poor have downgraded the outlook for Japan in being able to pay back its debt. This downgrading must be a very big blow to the Japanese economy, especially when Japan needs to rebuild after the devastating events.
Here are the reasons being given for the poor outlook with regard to the Japanese economy:
According to S&P, the cost of rebuilding could go as high as 50 trillion yen ($612bn; £372bn).
Japan has the highest public debt among the industrialised countries.
The agency also warned that if Japan’s debt levels continue to rise it could take further action.
“We revised the outlook on the long-term rating on Japan to negative, to reflect the potential for a downgrade, if fiscal deterioration materially exceeds these estimates in the absence of greater fiscal consolidation,” S&P said in a statement.
Japan’s reconstruction bill has been increasing as the full extent of the damage caused by the earthquake and tsunami becomes clear.
The government initially estimated that it will cost 25tn yen ($306bn) to rebuild the infrastructure in the affected areas.
However, S&P has indicated that the cost could be almost double that amount.
Please read the whole report on why Stanadard and Poor outlook is negative.
Last Monday the credit ratings agency scored the USA economy with a ratings downgrading. Despite the best efforts of that whiz kid Tim Geithner, you know the one who helped to destroy the Japanese economy over a long period of time, Standard and Poor decided that the economic outlook for the USA is uncertain.
You can read more on what this means for the USA over at Hot Air. Ed Morrissey has a good round-up on the subject.
You can read an economist’s viewpoint at the Charles Rowley blog which can be found here. Professor Rowley has a good summary of the situation and explains in simple language the economics of the current deficit crisis. Needless to say I agree with Professor Rowley’s viewpoint on the matter.
From what I am understanding about this warning given to the USA, Standard and Poor are not convinced that enough is being done to reduce the budget deficit. This is not the time to raise the debt ceiling, but it is a time to consider those welfare programs and make deep slashes where necessary. It is also the time to shelve Abominablecare because the impact of the package will be to continue to put pressure on the budget deficit.