Tuesday, March 15, 2011

Today's links

1--Japan PM Warns On Radiation Risk After Nuke Reactor Explosions, Wall Street Journal

Excerpt: Japanese Prime Minister Naoto Kan said Tuesday there's a high risk of elevated levels of radiation from a reactor at the Fukushima nuclear power plant that exploded earlier in the day, and urged people within 30 kilometers of the plant to stay indoors.

Authorities said an explosion at the No. 2 reactor at the Fukushima Daiichi nuclear power plant, located 160 miles northeast of Tokyo, appears to have caused damage. Some staff had been evacuated from the facility as radiation levels at the site rose sharply.

"Substantial amounts of radiation are leaking in the area," Kan said on television at 0200 GMT, urging people to remain calm. "We are making utmost efforts to prevent further explosions or the release of radioactive materials."

The Japanese Meteorological Agency dismissed a report that radioactive contamination from the plant could reach Tokyo in 10 hours....

2--In Stricken Fuel-Cooling Pools, a Danger for the Longer Term, New York Times

Excerpt: Even as workers race to prevent the radioactive cores of the damaged nuclear reactors in Japan from melting down, concerns are growing that nearby pools holding spent fuel rods could pose an even greater danger.

The pools, which sit on the top level of the reactor buildings and keep spent fuel submerged in water, have lost their cooling systems and the Japanese have been unable to take emergency steps because of the multiplying crises.

The threat is that the hot fuel will boil away the cooling water and catch fire, spreading radioactive materials far and wide in dangerous clouds....

The bad news is that if efforts to deal with the emergency fail, the results could be worse.

The pools are a worry at the stricken reactors at the Fukushima Daiichi plant because at least two of the three have lost their roofs in explosions, exposing the spent fuel pools to the atmosphere. By contrast, reactors have strong containment vessels that stand a better chance of bottling up radiation from a meltdown of the fuel in the reactor core.

Were the spent fuel rods in the pools to catch fire, nuclear experts say, the high heat would loft the radiation in clouds that would spread the radioactivity.

“It’s worse than a meltdown,” said David A. Lochbaum, a nuclear engineer at the Union of Concerned Scientists who worked as an instructor on the kinds of General Electric reactors used in Japan. “The reactor is inside thick walls, and the spent fuel of Reactors 1 and 3 is out in the open.”...

The threat is considered so severe that at the start of the crisis Friday, immediately after the shattering earthquake, Fukushima plant officials focused their attention on a damaged storage pool for spent nuclear fuel at the No. 2 reactor at Daiichi, said a nuclear executive who requested anonymity because his company is not involved in the emergency response at the reactors and is wary of antagonizing other companies in the industry.

3--Japan nuke plant fire leads to spewing radiation, CBS News

Excerpt: A fire at a fourth reactor in a quake-damaged nuclear plant sent radiation spewing into the atmosphere Tuesday. Earlier, a third explosion at the plant in four days damaged a critical steel containment structure around another reactor, as Japan's nuclear radiation crisis escalates dramatically.

The radiation level is now elevated to a point that may damage health, a government spokesman said. The exact amount of radiation being leaked is still unclear, but the country's prime minister said publicly that people within 19 miles of the troubled nuclear power plant should stay indoors.

After a third explosion in four days rocked the earthquake-damaged Fukushima Dai-ichi nuclear plant in northeast Japan early Tuesday, the country's nuclear safety agency said the explosion may have damaged a reactor's containment vessel. Some workers at that reactor were reportedly told to leave the site.

Making matters worse, the wind over the radiation-leaking nuclear plant in northern Japan will blow inland from the northeast and later from the east on Tuesday, the Japan Meteorological Agency said, according to Reuters. Harmful radiation can spread via wind and rain.

At a shelter in Sendai, workers told CBS News that everyone must avoid Tuesday's rain, as it carries nuclear radiation. Low-level radioactive wind from the nuclear reactor in Fukushima could reach Tokyo within 10 hours, based on current winds, the French embassy says. Radiation at up to 9 times the normal level was briefly detected in Kanagawa near Tokyo.

The blast at Dai-ichi Unit 2 followed two hydrogen explosions at the plant - the latest on Monday - as authorities struggle to prevent the catastrophic release of radiation in the area devastated by a tsunami.

4--Stock Plunge in Japan Rattles Global Markets, New York Times

Excerpt: The prospect of a nuclear catastrophe in Japan led to heavy selling Tuesday on global markets, driving the benchmark index in Tokyo down more than 10 percent, while Frankfurt tumbled over 4 percent in early European trading.

Wall Street also looked set for a weak opening. Futures contracts on the Standard & Poor’s 500 index expiring in June sank 2.7 percent around midday in Europe.

Unnerved by the earthquake and tsunami that struck Friday, investors in Japan had already sent the Nikkei 225 index down more than 6 percent on Monday. They stepped up their selling Tuesday after another explosion occurred at the Fukushima Daiichi Nuclear Power Station and a fire released radioactive material into the air.

After falling more than 14 percent at one point, the Nikkei index closed down 10.6 percent at 8,605.15 points, the lowest in nearly two years. The broader Topix, or Tokyo Stock Price Index, ended 9.5 percent lower.

5--Japan's PM warns of dangerous radiation levels, CBC

Excerpt: Residents ordered to stay indoors from 'levels that can damage human health'

Dangerous levels of radiation leaking from a crippled nuclear plant forced Japan to order 140,000 people to seal themselves indoors Tuesday after an explosion and a fire dramatically escalated the crisis spawned by a deadly earthquake and tsunami.

In a nationally televised statement, Prime Minister Naoto Kan said radiation has spread from the four stricken reactors of the Fukushima Dai-ichi nuclear plant along Japan's northeastern coast....

Japanese officials told the International Atomic Energy Agency that the reactor fire was in a storage pond and that "radioactivity is being released directly into the atmosphere." Long after the fire was extinguished, a Japanese official said the pool, where used nuclear fuel is kept cool, might be boiling.

"We cannot deny the possibility of water boiling" in the pool, said Hidehiko Nishiyama, an official with the Economy Ministry, which oversees nuclear safety....

"Now we are talking about levels that can damage human health. These are readings taken near the area where we believe the releases are happening. Far away, the levels should be lower," he said.

"Please do not go outside. Please stay indoors. Please close windows and make your homes airtight. Don't turn on ventilators. Please hang your laundry indoors."

"These are figures that potentially affect health, there is no mistake about that," he said....

"It's like a horror movie," said 49-year-old Kyoko Nambu as she stood on a hillside overlooking her ruined hometown of Soma. "Our house is gone and now they are telling us to stay indoors.

"We can see the damage to our houses, but radiation? ... We have no idea what is happening. I am so scared."

6--Conservative zealotry vs. economic reality, Katrina vanden Heuvel, Washington Post

Excerpt: One thing about the current generation of conservatives: Getting mugged by reality hasn't changed the way they look at the world. We've just come through a calamitous financial collapse - caused by reckless Wall Street gambling and toothless watchdogs - that triggered a Great Recession and doubled the U.S. national debt. The collapse is the greatest cause of large deficits, but conservatives act as if the deficits caused the collapse....

In Washington, Boehner's caucus exhibits the same zealotry. "The American people want us to cut spending," the GOP Speaker repeats, ignoring the vast majority of polls that show Americans care far more about jobs and the economy. We will "cut and grow," is the new conservative message. Get government out of the way and the economy will blossom.

Yet Goldman Sachs projected this month that the deep cuts in domestic programs in the 2010 budget passed by the House could cut our growth rate in half. John McCain's former economic adviser, Mark Zandi, projected a loss of 700,000 jobs. If the budget cuts cost federal jobs, said Boehner, sounding like a latter-day Marie Antoinette, "so be it." He believes the private sector will more than make up for the loss of such jobs....

In Britain and the United States, it is bizarre to hear the same cruel conservative ideas and arguments defining policy while both countries still struggling to recover from the human catastrophe they caused. And in both, economic reality doesn't interfere with conservative faith.

In the United States, 25 million people are in need of full time employment. Housing prices are headed back down; trade deficits are going back up. State and local governments have largely exhausted rainy day funds and are laying off workers. Businesses are sitting on trillions in cash while waiting for consumer demand to pick up. At last Thursday's "Summit on Jobs and America's Future," sponsored by the Campaign for America's Future, economists showed that at current rates it would take eight years for the United States merely to return to pre-recession levels of employment.

For the unemployed, time isn't measured in hours or months. It is measured by savings exhausted, homes lost, dreams crushed, children uneducated, marriages broken. Eight years is a calamity. But the White House and Republicans are arguing only about how much and what to cut, assuming that business needs only confidence, not consumers, to start hiring again.

You have to admire conservative gall. Financial collapse and global economic calamity changes not a word of their mantras. At the depth of the crisis, former Federal Reserve chairman Alan Greenspan, the Ayn Rand devotee and toothless watchdog whose willful lassitude did as much as anyone to allow Wall Street to blow up the economy, admitted to "a flaw" in his world view. But last week, Greenspan was newly unrepentant, charging that Obama's governmental "activism" was standing in the way of recovery.

Greenspan didn't mention that the pre-crisis decade featured declining wages and benefits for most American families, Gilded Age inequality, the hemorrhaging of manufacturing jobs, unsustainable trade deficits and ruinous financial speculation. But neither Greenspan nor conservatives nor, tragically, Obama are about to let reality get in the way of ideology.

7--The Economic Consequences of the Arab Revolt, Nouriel Roubini, Project Syndicate

Excerpt: Political turmoil in the Middle East has powerful economic and financial implications, particularly as it increases the risk of stagflation, a lethal combination of slowing growth and sharply rising inflation. Indeed, should stagflation emerge, there is a serious risk of a double-dip recession for a global economy that has barely emerged from its worst crisis in decades.

Severe unrest in the Middle East has historically been a source of oil-price spikes, which in turn have triggered three of the last five global recessions....

Even before the recent Middle East political shocks, oil prices had risen above $80-$90 a barrel, an increase driven not only by energy-thirsty emerging-market economies, but also by non-fundamental factors: a wall of liquidity chasing assets and commodities in emerging markets, owing to near-zero interest rates and quantitative easing in advanced economies; momentum and herding behavior; and limited and inelastic oil supplies. If the threat of supply disruptions spreads beyond Libya, even the mere risk of lower output may sharply increase the “fear premium” via precautionary stockpiling of oil by investors and final users....

If oil prices rise much further – towards the peaks of 2008 – the advanced economies will slow sharply; many might even slip back into recession. And, even if prices remain at current levels for most of the year, global growth will slow and inflation will rise.

8-- Will Ireland Threaten to Default? Naked Capitalism

Excerpt: In the last few days, there has been a sudden recognition, at least on the part of some Irish commentators, that Ireland has the upper hand. A default would be a disaster for European banks, and anyone who has been paying attention knows that the refusal to restructure periphery country debt is a way to avoid bailing out not very popular German and French banks.

The long-form statement of this view comes from “economist, broadcaster, author” David McWilliams (hat tip Richard Smith):

No one here believes a word that comes out of the European Commission, the ECB or the organs of the Irish state.

The traders I chatted to see the numbers….all agree that the way to go is to default on the bank debt and start again, protecting the sovereign in the process…..all of them believe that, if Ireland stops paying the ‘‘odious’’ bank debts, the economy will recover extremely quickly. They also indicated that they would consider buying Irish government paper if we got rid of our bank debt. But with the bank debt, there is no way...

A structured default now is the game-changer we need. The view from Wall Street this afternoon is that this is the answer....

And in case you think Irish bank solvency is not tightly connected to bank solvency in the eurozone, consider this Financial Times editorial from last year:

But the most urgent problem is not the solvency of the Irish state; it is the solvency of the Irish banking system….If Irish banks collapse – and if one falls it will not fall alone – it may well trigger bank failures across a continent that remains full of institutions whose earlier stress tests were remarkably stressless…

And before you think this talk of Ireland defaulting is just some wishful thinking on the part of naive journalists and bloggers, Irish ministers, in particular ones with relevant portfolios, are talking about it openly. From BreakingNewIreland (hat tip Richard Smith):

The Junior Minister for European Affairs has said Ireland holds the bargaining card in the negotiations over the interest rate on the EU/IMF bailout package.

Lucinda Creighton said it’s not in the interest of other European countries for Ireland not to be able to repay this loan.

She said this fact will give Ireland more bargaining power in these negotiations: “The very worst case scenario would be for some sort of sovereign default in Ireland which would have a ripple effect across the EU,” Ms Creighton said.

“It would have devastating consequences for the euro, I think that our partners around the EU table know that.”

9--Earnings Trends--Margins still expanding, Pragmatic Capitalism

Excerpt: The economy does seem to have made a slow turn towards recovery. Even if we avoid a government shutdown, the House spending cuts of $61 billion would exert a very significant drag on the economy, as will the cuts that are happening on the State and Local levels. Mark Zandi, of Moody’s Economics, and a top economic advisor to the McCain campaign, has estimated that the spending cuts could result in as many as 700,000 fewer jobs being created in 2011 and 2012, combined.

The impact will probably be about 1% slower GDP growth than if the cuts had not happened. The lower growth will result in lower tax collections, so the impact on the budget deficit will be much less than the $60 billion advertised.

Job creation remains sluggish, but is starting to show signs of picking up. We created 222,000 jobs in the private sector in February, up from just 68,000 in January. However, State and Local governments laid off a total of 30,000 people for the month. Those jobs count just like private sector jobs, and are a major headwind to bringing down the total number of unemployed.

The household survey has been much more upbeat, showing growth of 250,000 jobs in February. The unemployment rate fell to 8.9%, and it was as high as 9.8% as recently as November. The drop in December and January was the largest two-month drop in the unemployment rate since 1958, and many thought it was a fluke, but the continued fall in February is an indication that it was for real.

Higher Productivity

Most of the real growth in the economy has come from higher productivity, not more hours being worked. Those productivity gains are accruing to capital: higher profits, not labor (flat wages, slow hiring).

In the fourth quarter, productivity rose at 2.6% while unit labor costs dropped 0.6%. This is a major reason behind the rising net margins, and resulting strong earnings growth. Companies have been able so far to absorb higher commodity prices, and not pass them along to consumers (year-over-year core CPI is just 1.0%) due to those productivity gains. If earnings growth does weaken, I suspect it will be from a slower rise in net margins than currently expected, but there is no evidence of any margin slowdown so far.

Rising commodity prices, most importantly rising oil prices, have the potential to stop the margin expansion, but so far show little sign of actually doing so.

10--US Economy in Balance Sheet Recession: What the US can learn from Japan's experience (1990-2005), Richard Koo, chief economist Nomura Research Institute

Analysis: Must read for better understanding of financial crisis/recession and remedies

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