Making room

15 March 2011 By James Pethokoukis

When your credit card is nearly maxed out, dealing with emergencies can be tricky. A massive rebuilding effort may stretch Japan to its financial limits. Politicians in Washington and other overspending capitals should take note of the warning.

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Quakehit Japan faces a recovery and reconstruction bill of at least $180 billion, or 3 percent of its annual economic output, according to initial estimates from Credit Suisse and Barclays. That's more than 50 percent higher than the total cost of 1995's earthquake in Kobe. Some extreme projections of the longerterm costs run as high as $1 trillion over several years.

Japan, the world's thirdlargest economy, is already saddled with public debt double the size of its $5 trillion output. It must now rebuild its infrastructure from roads and rail to power and ports on a scale not seen since World War Two.

Moody's Investors Service warned on March 14 the huge financing needs Japan faces may erode investor confidence in the country's ability to repay its debts, forcing up borrowing costs.

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