March 22nd, 2011 11:58 EST
How Will the Disaster in Japan Affect the U.S.?
The world has become so small, and we have all become so interconnected, that the disaster in Japan is ready to, if it has not already, affected the rest of the globe. For the United States in particular, I have some thoughts to share about what the likely impact on our country is going to be.
As a resident of Los Angeles, 10 hours after the earthquake, the tsunami reached the shores of California. Great damage was done in Santa Cruz and a few other places, but nothing disastrous by any definition.
The bigger damage could be financially devastating to the United States unfolding as follows:
Interest rates in the United States may soon rise. It`s not necessarily intuitive, but here`s how it works. The United States has been borrowing to stay afloat. We borrow by issuing treasury bonds that institutions and other countries such as Japan buy with their surplus funds. Japan has been a substantial buyer of our bonds but because of the devastation in the north, Japan is going to need hundreds of billions of dollars ($235 billion currently estimated) to rebuild.
Therefore, Japan may need to sell some of the treasury bonds that they currently hold, and they probably will slow down buying new ones. There could be less demand for our bonds which means that the United States government has to raise interest rates to stimulate the market. Those interest rates, which typically will affect businesses and other short-term applications, could be felt shortly.
The nuclear industry is all but shut down in Japan and there will be implications in the United States too. Japan, being one of the largest economies on the planet, is a substantial user of oil, and if they can`t produce the 20% of the energy using their nuclear plants, then they will need more oil. That additional demand could cause prices for oil to increase in both the short-term and the long-term. Presently, the oil markets don`t seem to see it this way, but I believe they will.
With increasing oil prices, inflation could become a problem in the United States. We already have seen gasoline prices rise 50 cents or more in the past month or so, and as of today gasoline is about $4.15 a gallon in Los Angeles. We know that for every one penny gasoline increases, it takes $1.2 billion out of our economy that could be spent on other items. So $60 billion of consumer spending isn`t moving to restaurants, hotels and other outlets. That`s a big negative impact and with issues in Japan, these issues could be impacted even more.
With the increasing cost of oil, prices across the board in the United States will continue to rise. Inflation has been under control, but this now may become a problem. The only good news is that in an inflationary environment, real estate continues to be an excellent hedge against inflation, and since long-term interest rates - including mortgage rates - are likely to stay relatively flat, real estate continues to be a good investment. If you can borrow, you can buy outright. If you can`t borrow, consider joining a real estate group, a real estate fund or some other real estate vehicle so that you can participate in that upside.
Interestingly, donations to help victims of the disaster have been trickling in by comparison to the massive amount of aid that poured into Haiti last year after their devastating earthquake that took over 200,000 lives. Why? One can only speculate, but could it be that Japan is a rich country and it is perceived as not needing help? What does that mean if there was such a calamity in the United States? Would others perceive the need to help us?
All of us, regardless of the type of disaster that we face, could all relate to what`s happening in Asia. Whether it`s hurricanes, tornadoes, earthquakes or other types of devastation, nothing seems to compare to the power of a tsunami, and our hearts go out to those people in Japan.
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Often dubbed a "Growth Architect" by his clients, Joel Block advises companies on explosive growth strategies by driving revenue and sales. Well known in the capital markets, Joel is a successful entrepreneur, speaker, advisor and astute investor. Joel is President & CEO of Bullseye Capital (www.bullseyecap.com), a full-service real estate company that supports owners and buyers of real estate assets with brokerage, leasing, property management, and mortgage services. Joel is also the founder of the Bullseye Capital Real Property Opportunity Fund, LLC (www.BullseyeCapFund.com).
The company also provides investment opportunities to accredited investors. A leader in real estate syndication, the company invests in properties and offers seminars to assist others in acquiring the skills needed to raise syndicate capital to acquire properties. Imagine knowing how to pool funds to purchase any real estate investment, whether it is for single family, multi-family, commercial, or another kind of investment property. For full information, go to www.syndicatefast.com.
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