"Nurse Aiko Hamaguchi at the Manzanar Relocation Center, California"
Ilargi: Stoneleigh has done a lot of thorough digging lately and emerges with an epic portrait of Japan and its nuclear industry that few if any of us who read it will ever forget. It is as shocking and devastating as it is, frankly, from a western point of view, utterly insane. The combination of the perils of modern science and an at heart still almost entirely feudal society is for many Japanese a very unhappy one, and deadly too. Don't miss this.
“Denko-chan (でんこちゃん), whose name comes from the “den” of electric power (電力, denryoku), the “ko” (子, child) in which female names so often end, trapping their bearers in a state of eternal childhood, and the generally female diminutive suffix “chan”, can be found everywhere in TEPCO propaganda. Here she is, with finger characteristically a-wagging, admonishing us to “Take care of electricity!””
Stoneleigh: These days, Denko-chan is perhaps more representative of the situation that the country and TEPCO find themselves in when rendered like this, in fan art:
As an energy resource poor island, Japan has embraced nuclear power over the last several decades as a means to ensure security of energy supply. Growth in electricity supply was a key enabler of the Japanese post-war boom and commitment to high-tech industrial growth, but dependence on external sources would have entailed a major vulnerability. The oil shocks of the 1970s strongly underlined the danger of dependency on potentially unstable or capricious foreign suppliers, creating further impetus for nuclear development. The relative independence and self-sufficiency conferred by nuclear development also fitted with a characteristic Japanese cultural insularity. Prior to the earthquake and tsunami, nuclear provided over 30% of Japan's electric power from 54 reactors.
Since the disaster of March 11th, the world has been watching Japan struggle to deal with an unanticipated eventuality that greatly exceeded the design-basis accident for the 40-year old Fukushima plant and overwhelmed its inadequate defences. Japan is in uncharted waters, attempting to control several badly damaged reactors and several spent fuel pools simultaneously, under circumstances for which there is no rule book to follow. Criticism is mounting as to the way the catastrophe is being handled, and the Japanese nuclear governance record is coming under sharp scrutiny.
In order to fathom the Japanese approach to these events, it is necessary to understand aspects of Japanese culture, especially as it manifests in terms of corporate culture.
People's sense of identity and worth is tightly bound with membership of strong, cohesive groups. Japan is an insular and collectivist society which prizes conformity, loyalty, harmony, obedience, consensus, teamwork, stability and homogeneity, and strongly discourages deviation from the norm or standing out from the crowd. Originality, initiative, freedom of expression and openness to outside influences are therefore not generally rewarded. There is an old Japanese proverb encapsulating this attitude:
出る杭は打たれる。("Deru kui wa utareru"), or in English, "The stake that sticks up gets hammered down."
Sociologist Geert Hofstede:
Individualism on the one side versus its opposite, collectivism, that is the degree to which individuals are integrated into groups. On the individualist side we find societies in which the ties between individuals are loose: everyone is expected to look after him/herself and his/her immediate family.
On the collectivist side, we find societies in which people from birth onwards are integrated into strong, cohesive in-groups, often extended families which continue protecting them in exchange for unquestioning loyalty. The word 'collectivism' in this sense has no political meaning: it refers to the group, not to the state.
Stoneleigh: In the corporate world, loyalty to one's firm, and to the team effort, is expected to be demonstrated by sacrifices such as working long hours and not taking one's allotted vacation. This has traditionally been rewarded with job security, wages which increase substantially with seniority, insurance, bonuses, pensions, access to company recreational facilities and low-cost loans. Group activities are encouraged, both on the job and after hours. The life of a salaryman is expected to revolve around the office. He is expected to share a strong emotional bond with his co-workers, and to share the attitudes and values of the group. Salarymen are sometimes unflatteringly referred to as 社畜 (shachiku), meaning 'corporate livestock'.
Responsibility is collective, and the leadership role of top management is defined by the ability to maintain harmony and create consensus, rather than the making of bold decisions. Policy is shaped at the level of middle management. Actions leading to potential conflict are discouraged, because of the importance placed avoiding embarrassment or shame. Failing to fulfill one's obligations to the group also results in loss of face in a culture where relationships, and the good opinion of others, are of the utmost importance.
This corporate culture applies particularly to large, first-tier, Japanese firms, such as TEPCO, where job security has been much stronger through Japan's two decades of economic stagnation. Employment at such a firm is typically only open to graduates of Japan's top thirty colleges and universities, hence much effort from a young age is invested in gaining entrance to one of these institutions. Doing so confers high status, which is extremely important (it influences everything from the depth of a bow on greeting, to the language style used, the gifts given, and the relationships formed). Hofstede:
Companies provide their own training and show a strong preference for young men who can be trained in the company way. Interest in a person whose attitudes and work habits are shaped outside the company is low.
Permanent employees are hired as generalists, not as specialists for specific positions. A new worker is not hired because of any special skill or experience; rather, the individual's intelligence, educational background, and personal attitudes and attributes are closely examined. On entering a Japanese corporation, the new employee will train from six to twelve months in each of the firm's major offices or divisions. Thus, within a few years a young employee will know every facet of company operations.
Seniority is determined by the year an employee's class enters the company. Career progression is highly predictable, regulated, and automatic. Members of the same graduating class usually start with similar salaries, and salary increases and promotions each year are generally uniform. The purpose is to maintain harmony and avoid stress and jealousy within the group.
Stoneleigh: This kind of culture is weaker in second-tier firms, which cannot provide the same benefits as a reward for loyalty. It weakens further as one descends strong social hierarchy, which exists as a relic of the old feudal caste system. Business elites expect to have a job and support structure for life, but at the other end of the social spectrum exists considerable, and sometimes hereditary, disadvantage. For instance, Burakumin (village people) are descendants of outcast communities from the feudal era, considered to have been tainted by their ancestral professions (executioners, undertakers, workers in slaughterhouses, butchers or tanners). Wikipedia:
They were legally liberated in 1871 with the abolition of the feudal caste system. However, this did not put a stop to social discrimination and their lower living standards, because Japanese family registration (Koseki) was fixed to ancestral home address until recently, which allowed people to deduce their Burakumin membership. The Burakumin were one of the several groups discriminated against within Japanese society.
Stoneleigh: Other disadvantaged groups include residents of yoseba, or downwardly-mobile communities for day labourers, who are generally single, aging and low-skilled. "As they are increasingly transient, without a fixed address, they are denied access to communal and welfare services which in the past helped them to survive."
In the context of tackling the Fukushima disaster, this hierarchy appears to play a significant role:
Dying for TEPCOJob offers come not from TEPCO but from Mizukami Kogyo, a company whose business is construction and cleaning maintenance. The description indicates only that the work is at a nuclear plant in Fukushima Prefecture. The job is specified as 3 hours per day at an hourly wage of 10,000 yen. There is no information about danger. Those who answer these offers may have little awareness of the dangers and they are likely to have few other job opportunities. $122 an hour is hardly a king’s ransom given the risk of cancer from high radiation levels.
Rumor has it that many of the cleanup workers are burakumin. This cannot be verified, but it would be congruent with the logic of the nuclear industry and the difficult job situation of day laborers. Because of ostracism, some burakumin are also involved with yakuza [members of organized crime syndicates].
Therefore, it would not be surprising that yakuza-burakumin recruit other burakumin to go to Fukushima. Yakuza are active in recruiting day laborers of the yoseba. People who live in precarious conditions are then exposed to high levels of radiation, doing the most dirty and dangerous jobs in the nuclear plants, then are sent back to the yoseba. Those who fall ill will not even appear in the statistics.
Stoneleigh: Prior to the devastation caused by the earthquake and tsunami, there was already a well established hierarchical subcontracting system in place:
These contract employees or temporary workers were provided by subcontracting companies: they range from rank and file workers who carry out the dirtiest and most dangerous tasks—the nuclear gypsies described in Horie Kunio’s 1979 book and Higuchi Kenji’s photographic reports—to highly qualified technicians who supervise maintenance operations. So even within this category, there is much discrepancy in working conditions, wages and welfare depending on position in the hierarchy of subcontracted tasks.
What is clear is that the contract laborers are routinely exposed to the highest level of radiation: in 2009 according to NISA, of those who received a dose between 5 and 10 millisieverts (mSv), there were 671 contract laborers against 36 regular employees. Those who received between 10 and 15 mSv were comprised of 220 contract laborers and 2 regular workers, while 35 contract workers and no regular workers were exposed to a dose between 15 and 20 mSv.
Since contract laborers move from one nuclear plant to another, depending on the maintenance schedule of the various reactors, they lack access to their individual cumulative dose for one year or for many years. NISA compiles only the cumulative dose for each nuclear plant. The result is that the whole system is opaque, thus complicating the procedure for workers who need to apply for occupational hazards compensation.
Stoneleigh: This 1995 documentary provides some interesting background on the topic:
Nuclear Ginza: Japan’s secret at-risk labor force and the Fukushima disasterBack in 1995, the UK’s Channel 4 produced a 30-minute documentary on Japan’s nuclear industry and how they use disadvantaged people, including burakumin and other day laborers, to do manual labor inside their power plants. And by inside, I mean inside. Some were forced to work right next to the room where the core was kept, in the dark and drenched in sweat; one man tells how he was forced to mop up radioactive water with towels.
Watch additional video segments here
Stoneleigh: It may be very difficult to undertake any future epidemiological study of the health effects of Fukushima liquidators, as it was at Chernobyl where little data was ever collected. In the case of Chernobyl this willful blindness has allowed the official numbers for mortality and morbidity to be grossly underestimated. At Chernobyl there were hundreds of thousands of liquidators in the years following the accident, while at Fukushima the numbers are so far orders of magnitude lower.
Apparently, TEPCO is considering improving working conditions at the plant, but so far only in terms of food, showers and accommodation. There has been no mention of better radiation protection, even though workers have begun entering the reactor buildings:
Tokyo Electric Power Co (TEPCO) said it started work to install a ventilation system to clean the air inside the building at the Fukushima Daiichi plant.
Once the air inside is cleaned, TEPCO plans to send crews in to conduct complex work as part of attempts to bring the entire plant to a cold shutdown. It will be the first time workers have gone inside the building since the March 11 disaster.
The utility said it began installing tent-like equipment to keep radioactive materials inside the reactor one building when workers open its doors. The air inside the structure is highly contaminated with radioactive materials.
Stoneleigh: Discrimination against disadvantaged segments of society goes beyond feudal history and the workplace. In fact Fukushima is generating a new group to be marked as outsiders and treated accordingly in some quarters.
Don't stigmatise nuclear evacuees, says Japan governmentThe Japanese government on Tuesday urged "heartless" people, local authorities and businesses not to discriminate against evacuees from the area around the crippled Fukushima nuclear plant.
The call came after some evacuation centres demanded radiation-free certificates from people who lived near the plant, and following reports that hotels have turned them away and their children have been bullied.
Since the March 11 earthquake and tsunami triggered the world's worst nuclear crisis since Chernobyl, nearly 86,000 people have had to evacuate, with about 30,000 of them relocated outside Fukushima prefecture.
Stoneleigh: TEPCO's management of the Fukushima crisis is being increasingly criticized, both externally and within Japan itself. For instance, the Soviet Army officer in change of the Chernobyl accident, Col-Gen Nikolai Antoshkin, has expressed shock at what he calls the "slow-motion" reaction at Fukushima. A few days after March 11th, TEPCO was evacuating 740 “non-essential” staff from the complex – leaving only 50 technicians to fight the worst civil nuclear crisis in Japan’s history. In contrast, a small army descended on Chernobyl in the days following the 1986 accident.
Several other foreign commentators, including Arnie Gundersen and Chris Busby, have also pointed out that Chernobyl was no longer emitting radiation into the environment after 6-7 weeks, while the Fukushima reactors are still doing so, and remain critically unstable. The continuing release of radiation will make the task of cleaning up ever more dangerous for the liquidators.
Michio Ishikawa, a veteran member of the Japan Nuclear Technology Institute who believes that all the reactors have melted down, has made a public stand on the issue of response adequacy as well. He describes the on-going disaster as a "war" and the efforts so far to cool the reactors as "peripheral tricks".
His assessment is stark indeed:
The water [inside the pressure vessel] is highly contaminated with uranium, plutonium, cesium, cobalt, in the concentration we've never seen before.
My old colleague contacted me and shared his calculations with me. At the decay heat of 2000 kilowatt... There's a substance called cobalt 60. Highly radioactive, needs 1 to 1.5 meter thick shields. It kills people at 1000 curies. He calculated that there are 10 million curies of cobalt-60 in the reactor core. If 10% of cobalt-60 in the core dissolve into water, it's 1 million curies [37,000 terabecquerels].
Stoneleigh: As Mr Ishikawa has indicated, TEPCO has consistently been reluctant to share information in its possession regarding the seriousness of the radiation release in the early days of the accident, ostensibly understating the seriousness in order to prevent panic.
It seems likely, given the defensive responses of an embattled company, that the lack of openness is at least partly due to corporate interests over-riding the broader public interest. When asked about the discrepancies between his view and the official story of limited core damage, Mr Ishikawa labelled the official line a lie. Perhaps because he is 77 years old, he no longer needs to be mindful of the effect that breaking ranks with the collective could have for him personally.
Japan Denies Withholding Evidence of Massive Radiation ReleaseJapan on Tuesday [a month after the accident] upgraded the plant's incident level from 5 to 7, a classification reserved for the most severe nuclear crises. The government took the action in large part in response to calculations showing that extreme quantities of radioactive iodine and cesium had escaped from the six-reactor facility in the first week after it was crippled by the 9.0-magnitude earthquake and devastating tsunami that hit Japan on March 11.
Uncertainty over the calculations' accuracy held up their release, Japanese Nuclear Safety Commission official Seiji Shiroya said. In addition, the official suggested the government was concerned the measurements could exacerbate public fear over the atomic crisis.
“Some foreigners fled the country even when there appeared to be little risk,” Shiroya said. “If we immediately decided to label the situation as level 7, we could have triggered a panicked reaction."
Stoneleigh: In addition to the delay in releasing vital information, some of the delay in making meaningful attempts to cool the damaged reactors is also attributable to corporate priorities over-riding the public interest:
Bid to 'Protect Assets' Slowed Reactor FightCrucial efforts to tame Japan's crippled nuclear plant were delayed by concerns over damaging valuable power assets and by initial passivity on the part of the government, people familiar with the situation said, offering new insight into the management of the crisis [..]
The plant's operator—Tokyo Electric Power Co., or TEPCO—considered using seawater from the nearby coast to cool one of its six reactors at least as early as last Saturday morning, the day after the quake struck. But it didn't do so until that evening, after the prime minister ordered it following an explosion at the facility. TEPCO didn't begin using seawater at other reactors until Sunday.
TEPCO was reluctant to use seawater because it worried about hurting its long-term investment in the complex, say people involved with the efforts. Seawater, which can render a nuclear reactor permanently inoperable, now is at the center of efforts to keep the plant under control.
Stoneleigh: It is not clear who is in charge, which is not surprising given Japan's consensus-building culture. Yuki Tatsumi for BBC:
As the head of the disaster response headquarters, the prime minister has the authority to direct relevant government agencies as well as private companies that are involved in responding to the disaster.
He has two entities from which to draw expert opinions to assist him in decision-making: the Nuclear and Industrial Safety Agency (Nisa, an agency within the Ministry of Economy, Industry and Trade (Meti) and the Nuclear Safety Commission, an advisory panel made up of non-government experts. So, legally speaking, the prime minister of Japan is in charge. Or he is supposed to be.
So what of Mr Kan's leadership to date? On the one hand, it has been clear that he wants to appear in charge: he wanted to "speak directly to the Japanese people" in the immediate aftermath of the earthquake. Four days after the quake, amid confusion over the situation at the plant, he was overheard by journalists asking TEPCO executives: "What the hell is going on?" [He could not understand why he had not been told for a whole hour about the first explosion at the plant.]
Demonstrating his distrust in TEPCO and Meti, he has appointed a number of non-government experts in addition to those who are already in advisory roles. As of 29 March, 5 out of 15 advisers were appointed specifically to advise on the situation at the plant.
Stoneleigh: One of these advisors has already submitted a tearful high-profile resignation:
During a press conference held at the Diet building later that day, [Tokyo University Professor Toshiso] Kosako, who was named a special advisor to Prime Minister Naoto Kan on March 16, criticized the government's handling of the crisis at the Fukushima No. 1 Nuclear Power Plant as shortsighted.
In particular, Kosako protested against the government's decision to revise the maximum permissible level of radiation exposure among children up to 20 millisieverts per year, saying, "Should I approve that decision, I would no longer be a researcher. I would not want my children to be exposed to that amount of radiation."
Kosako revealed the Cabinet did not accept his advice that outdoor school activities for elementary and junior high school students near the crippled power station be restricted to prevent them from being exposed to over 1 millisievert of radiation per year.
"It is quite rare for nuclear power plant workers dealing with radioactive materials to be exposed to 20 millisieverts of radiation per year. I cannot allow infants and children to be exposed to such high levels of radiation from an academic as well as humanitarian point of view."
He also pointed out that the government was slow in applying the System for Prediction of Environmental Emergency Dose Information (SPEEDI) and disclosing its data, even though nuclear safety guidelines stipulate the system be implemented immediately in an emergency. "The government has ignored the law and taken stopgap measures, failing to bring the crisis under control promptly," he said.
Stoneleigh: For Professor Kosako to resign a very prestigious advisory position and to be so overtly critical of authority is highly unusual in a Japanese cultural context, and quite likely to have significant consequences for him personally. As the proverb says, the stake that sticks up gets hammered down. The professor had intended to conduct a press conference to explain his position in detail, but was prevented from doing so by the Prime Minister's office.
Kan Administration Silences Prof. Toshiso Kosako with "Kindly" Advice on ConfidentialityProfessor Toshiso Kosako of Tokyo University, who resigned on April 30 in protest over the 20 milli-sieverts per year allowable radiation exposure to children, was threatened with a "kindly advice" from the Prime Minister's Office not to hold a press conference on May 2 to explain his opposition.
The "kindly advice" told Professor Kosako that he still has a confidentiality obligation not to disclose any information that he was privy to during his days as a special advisor to the Prime Minister.
Stoneleigh: Haruki Madarame, head of the Nuclear Safety Agency, recently expressed puzzlement at Professor Kosako's concern:
I only know what's reported in the newspapers, but honestly, I haven't a clue as to why Professor Kosako is so upset.
Stoneleigh: International research supports Professor Kosako's position:
Save the Children: Radiation Exposure of Fukushima StudentsFor infants (under 1 year of age) the radiation-related cancer risk is 3 to 4 times higher than for adults; and female infants are twice as susceptible as male infants. Females' overall risk of cancer related to radiation exposure is 40 percent greater than for males. Fetuses in the womb are the most radiation-sensitive of all.
The pioneering Oxford Survey of Childhood Cancer found that X-rays of mothers, involving doses to the fetus of 10-20 mSv, resulted in a 40 percent increase in the cancer rate among children up to age 15.
In Germany, a recent study of 25 years of the national childhood cancer register showed that even the normal operation of nuclear power plants is associated with a more than doubling of the risk of leukemia for children under 5 years old living within 5 kilometers of a nuclear plant.
Increased risk was seen to more than 50 km away. This was much higher than expected, and highlights the particular vulnerability to radiation of children in and outside the womb.
In addition to exposure measured by typical external radiation counters, the children of Fukushima will also receive internal radiation from particles inhaled and lodged in their lungs, and taken in through contaminated food and water.
Stoneleigh: At least Japan has, a month after the disaster, implemented a mandatory exclusion zone. Five additional communities will be added to the zone within the next month. In some of these communities, radiation levels are already nearly double the threshold for mandatory evacuation in the Ukraine following Chernobyl.
Discussions round the issue of compensation for the victims of Fukushima are already being held, although with the crisis still unfolding, it cannot be clear what compensation will be required:
The Japanese government has estimated that compensation for damages resulting from the country's nuclear crisis could reach four trillion yen ($49 billion), a report said Tuesday.
Half the money will come from Tokyo Electric Power Co (TEPCO), the operator of the crippled Fukushima Daiichi power plant, with the rest coming from other electricity companies, the Asahi Shimbun said, without citing sources [..]
TEPCO -- which supplies about one third of Japan's total power demand and services the Kanto region, including Tokyo -- would increase its power tariffs by 16 percent, the Asahi said.
In addition, the government believes it will cost 1.5 trillion yen to decommission the six reactors at the Fukushima Daiichi plant and 1.0 trillion yen to fuel thermal power plants to meet electricity demand, the Asahi said.
Stoneleigh: TEPCO is already making plans to cut costs in order to meet this open-ended liability:
The operator of the Fukushima Daiichi nuclear plant will implement deep salary cuts for management to help fund its compensation payments for the nuclear accident.
Tokyo Electric Power Company said on Monday that it would halve the salaries of all its board members, including the chairman and the president, starting this month. Annual pay for other executive directors will be slashed by 40 percent. The company will cut the salaries of about 3,000 employees in managerial positions by 25 percent.
TEPCO has already asked its labor union to accept a 20 percent reduction in annual pay for 32,000 rank-and-file employees. Both sides reached an agreement on the matter on Monday. The utility expects the measures to save some 660 million dollars in salary costs.
TEPCO will also give up its recruitment of about 1,100 new graduates for fiscal 2012 and sell off part of its stock holdings and real estate to raise money.
The company plans to make initial payments worth more than 600 million dollars to 50,000 households that have been forced to leave their towns to avoid high radioactivity caused by the nuclear accident.
But the total compensation amount is expected to balloon, as damage is spreading to the farming, fisheries and manufacturing industries.
Stoneleigh: In addition, abject public apologies have been made to evacuees:
Tokyo Electric Power Co. (TEPCO) President Masataka Shimizu was on his knees here on May 4, apologizing to residents of towns forced to evacuate by the Fukushima nuclear crisis [..]
Shimizu also visited the Adatara Gymnasium here, where about 100 nuclear crisis refugees from Namie are now living. There, he was showered with criticism and demands once more, including, "Get us back to our normal lives quickly," and "You told us nuclear power was safe. Was that a lie?"
Shimizu responded by saying, "From my heart I apologize to you for betraying your trust."
Stoneleigh: Unfortunately, betraying the trust of one's company, in the culture of the loyal company man, or even one's wider industry, has traditionally been considered a greater sin than betraying the trust of the public. The nuclear industry as a whole, including the regulator, has been particularly insular, defensive, and self-protective, leading to being labelled as 'The Atomic Village'. The impenetrable Atomic Village has been a law unto itself for decades, with the result that the history of Japanese nuclear power is one of accidents, cover ups and complicity in the betrayal of the public trust. A harsh light is now being focused on a shameful history that hides behind cheerful cartoon mascots.
After the earthquake: In the nuclear village (genshiryoku mura, 原子力村, ) (Please read the whole article.)Initially baffled and obliged to translate it, I asked the author, an expert in the electric power industry, what it meant. It refers, he explained, to the insularity and secretiveness of the nuclear-industrial complex, the close-knit web of ties that bind the supervisory ministry, the Ministry of Economy, Trade, and Industry, the lapdog watchdog under the ministry, the Nuclear and Industrial Safety Agency, the power companies, and the suppliers of the nuclear kit, prominent among them Hitachi, Toshiba, and Mitsubishi Heavy Industries.
This village mentality (mura ishiki, 村意識) is a microcosm of the national insularity encapsulated in a more familiar phrase, “island nation spirit” (shimaguni konjo, 島国根性), and it demands unwavering loyalty to the—in this case nuclear—cause, on pain of being subject to ostracism (mura hachibu, literally “village eight parts”, 村八分), in which in its original sense, those who infringed the codes and order of the village were excluded from eight of the ten social activities deemed essential to the life of the village, the only exceptions being firefighting—to prevent a fire spreading from the home of the ostracized—and funerals—those of the ostracized themselves.
Culture of Complicity Tied to Stricken Nuclear PlantIn 2000, Kei Sugaoka, a Japanese-American nuclear inspector who had done work for General Electric at Daiichi, told Japan’s main nuclear regulator about a cracked steam dryer that he believed was being concealed. If exposed, the revelations could have forced the operator, Tokyo Electric Power, to do what utilities least want to do: undertake costly repairs.
What happened next was an example, critics have since said, of the collusive ties that bind the nation’s nuclear power companies, regulators and politicians.
Despite a new law shielding whistle-blowers, the regulator, the Nuclear and Industrial Safety Agency, divulged Mr. Sugaoka’s identity to Tokyo Electric, effectively blackballing him from the industry. Instead of immediately deploying its own investigators to Daiichi, the agency instructed the company to inspect its own reactors. Regulators allowed the company to keep operating its reactors for the next two years even though, an investigation ultimately revealed, its executives had actually hidden other, far more serious problems, including cracks in the shrouds that cover reactor cores.”
“In Japan, the web of connections between the nuclear industry and government officials is now popularly referred to as the “nuclear power village.” The expression connotes the nontransparent, collusive interests that underlie the establishment’s push to increase nuclear power despite the discovery of active fault lines under plants, new projections about the size of tsunamis and a long history of cover-ups of safety problems.
Just as in any Japanese village, the like-minded — nuclear industry officials, bureaucrats, politicians and scientists — have prospered by rewarding one another with construction projects, lucrative positions, and political, financial and regulatory support. The few openly skeptical of nuclear power’s safety become village outcasts, losing out on promotions and backing.
Until recently, it had been considered political suicide to even discuss the need to reform an industry that appeared less concerned with safety than maximizing profits, said Kusuo Oshima, one of the few governing Democratic Party lawmakers who have long been critical of the nuclear industry.”
“At Fukushima Daiichi and elsewhere, critics say that safety problems have stemmed from a common source: a watchdog that is a member of the nuclear power village.
Though it is charged with oversight, the Nuclear and Industrial Safety Agency is part of the Ministry of Trade, Economy and Industry, the bureaucracy charged with promoting the use of nuclear power. Over a long career, officials are often transferred repeatedly between oversight and promotion divisions, blurring the lines between supporting and policing the industry.
Influential bureaucrats tend to side with the nuclear industry — and the promotion of it — because of a practice known as amakudari, or descent from heaven. Widely practiced in Japan’s main industries, amakudari allows senior bureaucrats, usually in their 50s, to land cushy jobs at the companies they once oversaw.
According to data compiled by the Communist Party, one of the fiercest critics of the nuclear industry, generations of high-ranking officials from the ministry have landed senior positions at the country’s 10 utilities since Japan’s first nuclear plants were designed in the 1960s. In a pattern reflective of the clear hierarchy in Japan’s ministries and utilities, the ministry’s most senior officials went to work at TEPCO, while those of lower ranks ended up at smaller utilities.”
“Collusion flows the other way, too, in a lesser-known practice known as amaagari, or ascent to heaven. Because the regulatory panels meant to backstop the Nuclear and Industrial Safety Agency lack full-time technical experts, they depend largely on retired or active engineers from nuclear-industry-related companies. They are unlikely to criticize the companies that employ them.
Even academics who challenge the industry may find themselves shunned. As Japan has begun looking into the problems surrounding collusion since March 11, the Japanese news media has highlighted the discrimination faced by academics who raised questions about the safety of nuclear power.
TEPCO Worker on Control Failures and the Culture of SilenceIf my colleagues knew I was speaking with the press, they would despise me for it. My boss would certainly dismiss me. Therefore, I must remain anonymous.
I have worked for TEPCO for a long time, and always considered it to be a good company. But now when I go to work, I see everywhere -- on trains, on the streets -- the headlines on the illuminated adverts for magazines: "TEPCO is bad, bad, bad." That rankles because I know how much criticism it really deserves [..]
I know that new geo-scientific knowledge on earthquakes and tsunamis was ignored. In 2009, a research institute warned of the consequences of a disaster of equal magnitude to what has happened now. But the officials of the nuclear supervisory authority, NISA, didn't take it seriously.
Controls in Japan don't work. NISA falls under the control of the Ministry of Economy, Trade and Industry, which also seeks to promote nuclear power. Isn't it strange that the same authority both supervises and promotes nuclear plants?
Moreover, the nuclear scientists from industry and NISA know each other all too well. The circle of nuclear scientists is very small, and many have studied together. I have witnessed this in the workplace myself.
The nuclear department at TEPCO is already a very special group, forming a closed world. Some call it the "atomic village" -- a separate company within a company. On the practical level, there is almost no exchange between the "atomic village" and other TEPCO departments.
This closed village has until now been allowed to hide data and test reports from nuclear power plants; to falsify and invent. For that reason, the president and the vice director resigned in 2002. The new head of TEPCO tried to open up the "atomic village" through transfers and restructuring, but everything is basically just the same.
Stoneleigh: Given the insular nature of the industry, it is hardly surprising that Greenpeace has been refused permission to take radiation measurements of water, sediment and marine life inside the 12 mile limit of Japan's territorial waters. In a situation where lack of information, especially timely information, has been typical, the results of independent monitoring could help to protect the health of a population which typically consumes a large amount of seafood. However, it could also potentially embarrass TEPCO or provide a justification for future expensive compensation claims.
Marine radiation monitoring blocked by Japanese governmentThe sparse data published by the government and TEPCO is not enough to understand the real risks of the continuous leakage of radioactive water in the sea.
The Japanese people are in great need of independent information on the radioactive contamination of their seafood supply. Therefore, we are planning to do research on the radioactive contamination of seaweed, fish and shellfish.
Despite this great need for information, the Japanese government today refused a permit to do research within the territorial waters of Japan. We are allowed to conduct research outside this 12 mile zone, but this is not the area where the Japanese catch their fish and collect their seaweed.
This is a critical situation, so we are not giving up. We will continue heading for Fukushima to begin our research at a distance while we pursue further permission to carry out the sampling within the 12 mile limit.
The Japanese government should welcome such independent monitoring, the fact is they can never have enough information about the extent of the contamination, and the public are entitled to the benefit from the scrutiny and pressure that independent monitoring brings.
Stoneleigh: The Japanese nuclear industry has an uninspiring safety record, both in terms of accidents and the means in which accidents have been addressed. Thus far The Atomic Village has demonstrated much more commitment to protecting itself from scrutiny and potential criticism by outsiders than to learning from its collective mistakes. There is a long history of failing to undertake inspections, failing to provide adequate training, falsifying safety records, tampering with evidence, jury-rigging repairs that would have been expensive to carry out properly, operating with potentially unsafe equipment and failing to design for withstanding obvious risks. There is no evidence of an effective safety culture, nor of any attempt to be proactive with regard to risk minimization. It is useful to review some of the accidents in order to see how this has played out in practice. In addition, examining the history of the Fukushima plant itself is instructive.
Monju (December 8th, 1995, after only 4 months of operation)Intense vibration caused a thermowell inside a pipe carrying sodium coolant to break, possibly at a defective weld point, allowing several hundred kilograms of sodium to leak out onto the floor below the pipe. Upon coming into contact with the air, the liquid sodium reacted with oxygen and moisture in the air, filling the room with caustic fumes and producing temperatures of several hundred degrees Celsius.
The heat was so intense that it melted several steel structures in the room. An alarm sounded around 7:30 p.m., switching the system over to manual operations, but a full operational shutdown was not ordered until around 9:00 p.m., after the fumes were spotted. When investigators located the source of the spill they found as much as three tons of solidified sodium. Fortunately, the leak occurred in the plant's secondary cooling system, so the sodium was not radioactive.
See also:The operator of a Japanese prototype fast-breeder reactor which was hit by a sodium leak had breached regulations by not immediately closing air ducts after smoke alarms went off, the Kyodo news agency said on Monday. Power Reactor and Nuclear Fuel Development Corp (PNC) which runs the reactor, Monju, said it did not close air ducts until 3 1/2 hours after alarms went off. Regulations in the construction permit for Monju, submitted to the government, stipulate air ducts to be immediately closed when smoke alarms go off, the Kyodo news agency said.
For anyone wondering why shutting down the air conditioning is so significant in an accident like that, some more background. Burning Sodium can not be extinguished using water as it violently reacts with water, producing explosive hydrogen gas in the process. Halon and carbon dioxide (dry ice) based fire extinguishers can't be used for a similar reason. The only way of putting out a sodium fire therefore is to starve it of all oxygen by cutting off the air supply and waiting for the fire to use up all oxygen.
Because of the danger of sodium fires, the primary coolant cycle where the sodium is highly radioactive is surrounded by inert nitrogen gas to reduce the chance of fires. Not so the secondary coolant cycle where the sodium fire occurred. By leaving the air conditioning on the operators of Monju kept pumping fresh oxygen into the room, fanning the flames of the burning sodium.
Panicked workers afraid to act without permission had worsened the initial leak by waiting 90 minutes to shut down the overheated system, officials admitted.
The PNC (called Donen in Japanese) which is controlled by the Japanese Science and Technology Agency had initially shown a 1 minute video of the accident site, later followed by another 4 minute clip and claimed that was all the footage that was available. None of this showed the actual coolant pipe that had leaked, only the floor of the site where the leak had occured. Later it was revealed that a total of 15 minutes of video had been taken, including footage of the affected pipe.
The one minute and four minute clips were only an edited version of the original clip. The existence of the unedited tape was kept secret for several days. It appears that the original tape had been deliberately edited to remove the footage of the leaking pipe. Asked for an explanation at a press conference of why the PNC had withheld information, Takao Takahashi, a board member of the PNC could only say: "There is none." It also turned out that the PNC had inspected the site of the accident before the time given to the press.
Isao Sato, the deputy chief of the Monju office of the PNC admitted to giving orders to hide the master tapes of the video and to issuing gag orders to employees about the existence of the unedited originals. He was quoted as saying: "I was determined to cover up the case."
Tokaimura Reprocessing Plant (March 11th, 1997):A fire and explosion at the plant released a cloud of smoke possibly containing uranium and plutonium. Investigations disclosed that no fulltime plant employees were on duty at the time of the fire and seven maintenance workers were off-site playing golf. Smoke detectors had been turned off and the sprinkler system was not automatic -- it had to be operated by hand.
Plant operators failed to warn nearby residents and even failed to evacuate 64 visitors who were on a tour of the plant when the fire broke out. When Prime Minister Hashimoto learned that the plant operators had lied to the government, he ordered a police raid on the company's headquarters. Five officials eventually were demoted for falsifying reports.
Tsuruga (July 12th, 1999)The coolant water leakage accident on July 12, at the second unit of the Tsuruga nuclear power plant (Japan) was not only one of the worst in terms of amount of primary coolant water that leaked (50 tons), but it is a significant accident because the crack that caused the leakage is different in nature from other power plant pipe cracks of the past.
The coolant leak at the Tsuruga reactor caused radiation levels inside the reactor building to shoot up 11,500 times the legal safety limit. This finding was announced by Japan Atomic Power Co. which operates the plant. At first, they said the highest level was about 250 times the limit (4 Bequerel per square centimeter set by Nuclear Reactors Control Law), but later they had to correct that figure. The highest level (46,000 Bequerel) was detected in a room on the second level basement, which is nine meters below the cracked pipe. The pipe in which the 4.4-cm long crack was found on July 12 was removed and closely examined. A second crack, 8 cm long, was found on the opposite side of the first crack. Later more cracks were found.
Tokaimura (September 30th, 1999)On the day of the criticality accident, workers were running fuel through the last steps of the fuel purification process.... The JCO plant only needed to mix some high-purity enriched uranium oxide (U3O8) with nitric acid to form uranyl nitrate for shipping. During this operation, the workers deviated from the licensed procedure in three basic ways.
First, to speed up the process, they mixed the oxide and nitric acid in 10-liter buckets rather than in the dissolving tank (in doing so, they followed the practice that JCO had written into its manual—without Science and Technology Agency approval).
Second, for convenience, they added the bucket contents to the precipitation tank rather than to the buffer tank. That was a key misstep, because the tall, narrow geometry of the buffer tank precludes criticality.
Third, in filling the precipitation tank, the crew added seven buckets, or roughly seven times more uranium than permitted by the STA license. It was the seventh bucket that caused the mixture to go critical [..]
According to STA, the three workers in the room at the time the precipitation tank went critical received doses of 17, 10, and 3 sieverts. The entire JCO plant, not just the purification operation, was shut down, and STA revoked JCO’s operating license for the plant.
Stoneleigh: Two of the exposed workers died from lethal doses of radiation. Over forty others were treated for high level exposure, and hundreds of people living near the plant had to be temporarily evacuated from their homes
Mihama (August 9th, 2004)A fatal accident happened at the Mihama No. 3 nuclear power station in Fukui prefecture, Japan. The plant is owned and run by Kansai Electric Power corporation (KEPCO), the major power utility in Western Japan. Four workers were scalded to death by superheated steam, seven other workers were injured.
The accident happened when the reactor was about to undergo routine maintenance. The accident was caused by a bursting steam pipe in the non-radioactive part of the reactor. In 27 years of operation that 56 cm diameter pipe had not once been checked for corrosion, let alone replaced. By the time it burst, its walls had worn down from an initial 10 mm of carbon steel to a mere 1.4 mm. Regulations required the pipes to be replaced when the walls were eroded to a thickness of 4.7 mm. Nine months before the accident a subcontractor company had alerted the operators to the need for inspections, but the warning was ignored.
Kashiwazaki-Kariwa (July 16th, 2007) World's largest nuclear installation, with 7 reactorsA 6.8 earthquake [significantly larger than the design-basis accident for the plant], 10 kilometres offshore from the Honshu west coast plant, caused subsidence of the main structure, ruptured water pipes, started a fire that took five hours to extinguish, and triggered radioactive discharges into the atmosphere and sea. The company initially said there was no release of radiation, but admitted later that the quake had released radiation and had spilled radioactive water into the Sea of Japan. Seismologist Katsuhiko Ishibashi warned that had the epicentre been 10 kilometres to the southwest and at magnitude 7, Kashiwazaki City would have experienced a major emergency.
Monju (August 26th, 2010, only 4 months after restart following a 14 year hiatus of operations)The accident involved a 3-tonne "fuel-replacement device" falling into the reactor vessel when being removed after a scheduled fuel replacement operation. According to Japanese Atomic Energy Agency (JAEA), the accident may result in a delay in bringing the reactor back into operation, since the device may have damaged the reactor vessel wall.”
Stoneleigh: The incident that most vividly illustrates the difficulty in establishing any kind of transparency or accountability in light of the tight-knit culture of the Atomic Village is the 1996 suicide of Shigeo Nishimura, deputy general manager of the general affairs department of the Power Reactor and Nuclear Fuel Development Corp. (PNC), who had been charged with investigating the cover up of the first Monju accident. His actions represent a willingness to pay the highest price in order to remain loyal to his chosen collective.
The Monju accident fall-outHe was tormented both by failure to get to the bottom of the cover-up and by the harm his inquiries would do to colleagues and the government corporation for which he worked for 26 years.
"They (PNC staff) were confident in their technical ability. But they may have found it difficult to explain their panic and confusion from the accident. It is most difficult for people to judge others and discover the truth," Nishimura said in one of three suicide notes. He was investigating why plant officials took one hour to notify authorities about the leak and why video film of the incident was both edited and concealed from the press and government agency charged with determining what caused the leak.
Stoneleigh: The cover up culture does not apply only to the aftermath of accidents, but has also been demonstrated repeatedly in the conduct of day to day operations. What has emerged into the public domain is surely the tip of the iceberg, but it represents damning evidence of disregard for safety and the public interest on behalf of utility companies, regulators and the government.
Whistleblowers have been scapegoated, punishing the few who are prepared to risk disloyalty to their companies. Companies order staff to violate safety procedures or falsify data. Regulators turn a blind eye to violations, incompetence and failure to address obvious risks. Governments blindly push ahead with a one-dimensional agenda. Nuclear is meant to represent a shining new future, in contrast to remaining mired in a decaying past, but the foundations of that future have been built in a seismic zone, both literally and metaphorically.
Japan’s TEPCO: a history of nuclear disaster cover-upsThe Tokyo Electric Power Company (TEPCO) is the conglomerate at the centre of Japan’s nuclear radiation emergency at Fukushima. Its operations over the past several decades epitomise the government-backed pursuit of corporate profit, at the direct expense of lives, health and safety.
TEPCO is the fourth largest power company in the world, and the biggest in Asia, operating 17 nuclear reactors and supplying one-third of Japan’s electricity. It has a long, documented history of serious safety breaches, systemic cover-ups of potentially fatal disasters, persecution of whistleblowers, suppression of popular opposition and use of its economic and advertising clout to silence criticism.
Among the company’s record of more than 200 proven falsifications of safety inspection reports [between 1977 and 2002] are several relating to the stricken Fukushima Daiichi facility itself. In 2002, TEPCO admitted to falsifying reports about cracks that had been detected in core shrouds at reactors number 1, 2, 3, 4 and 5, as far back as 1993. According to the Nuclear Industrial Safety Agency (NISA), TEPCO had attempted to hide cracks in reactor vessel shrouds in 13 units, including Fukushima Daiichi (6 reactors), Fukushima Daini (4 reactors), and Kashiwazaki-Kariwa (7 reactors). [..]
TEPCO’s wrongdoings were only revealed as a result of whistle-blowing by a former engineer at General Electric (GE), a company with close connections to TEPCO. GE built the plants and has been contracted by TEPCO to carry out inspection and operational matters for decades. Two years earlier, the engineer had reported the safety frauds to the relevant ministry, MITI, the forerunner of the current Ministry of Economy, Trade and Industry (METI), only to have the government supply his name to TEPCO and conspire with the company to bury the information.
Hitachi, which conducted the air tightness checks for TEPCO, was also implicated in the manipulation of test results. On two occasions, the pressure readings in Fukushima’s No 1 reactor were unstable, so workers were instructed to inject air into the container to make it appear that pressure was being maintained [..]
The 2007 closure of TEPCO’s largest nuclear plant contributed to the company posting its first ever losses over the past two years. It is now the world’s most indebted utility, with current net borrowings of $88 billion. This financial crisis has driven management to slash costs and boost output from its other plants, no doubt also at the expense of safety. TEPCO’s “2020 Vision” document pledges to “accelerate cost reduction efforts” and raise the non-fossil fuel (mainly nuclear) proportion of its generation from 33 to 50 percent.
Japan nuclear firm admits missing safety checks at disaster-hit plantThe power plant at the centre of the biggest civilian nuclear crisis in Japan's history contained far more spent fuel rods than it was designed to store, while its technicians repeatedly failed to carry out mandatory safety checks, according to documents from the reactor's operator [..]
When the plant was struck by a huge earthquake and tsunami, its reactors, designed by US scientists 50 years ago, contained the equivalent of almost six years of highly radioactive uranium fuel produced by the facility [..]
The revelations will add to pressure on TEPCO to explain why, under its cost-cutting chief executive Masataka Shimizu, it opted to save money by storing the spent fuel on site rather than invest in safer storage options [..]
One month before the tsunami, government regulators approved a TEPCO request to prolong the life of one of its six reactors by another decade, despite warnings that its backup power generator contained stress cracks, making them more vulnerable to water damage. Weeks later, TEPCO admitted it had failed to inspect 33 pieces of equipment inside the plant's cooling systems, including water pumps, according to the nuclear safety agency's website.
Fukushima Engineer Says He Helped Cover Up Flaw at Dai-Ichi Reactor No. 4Mitsuhiko Tanaka says he helped conceal a manufacturing defect in the $250 million steel vessel installed at the Fukushima Dai-Ichi No. 4 reactor while working for a unit of Hitachi Ltd. (6501) in 1974 [..]
Tanaka says the reactor pressure vessel inside Fukushima’s unit No. 4 was damaged at a Babcock-Hitachi foundry in Kure City, in Hiroshima prefecture, during the last step of a manufacturing process that took 2 1/2 years and cost tens of millions of dollars. If the mistake had been discovered, the company might have been bankrupted, he said.
Inside a blast furnace the size of a small airplane hanger the reactor pressure vessel was being treated one last time to remove welding stress. The cylinder, 20 meters tall and 6 meters in diameter, was heated to more than 600 degrees Celsius (1,112 degrees Fahrenheit), a temperature that softens metal.
Braces that were supposed to have been placed inside during the blasting were either forgotten or fell over when the cylinder was wheeled into the furnace. After the vessel cooled, workers found that its walls had warped, Tanaka said.
The vessel had sagged so that its height and width differed by more than 34 millimeters, meaning it should have been scrapped, according to nuclear regulations. Rather than sacrifice years of work and risk the company’s survival, Tanaka’s boss asked him to reshape the vessel so that no-one would know it had ever been damaged. Tanaka had been working as an engineer for the company’s nuclear reactor division and was known for his programming skills.
“I saved the company billions of yen,” said Tanaka, who says he was paid a 3 million yen bonus and presented with a certificate acknowledging his “extraordinary” effort. “At the time, I felt like a hero,” he said.
Over the course of a month, Tanaka said he made a dozen nighttime trips to an International Business Machines Corp. office 20 kilometers away in Hiroshima where he used a super- computer to devise a repair.
Meanwhile, workers covered the damaged vessel with a sheet, Tanaka said. When Tokyo Electric sent a representative to check on their progress, Hitachi distracted him by wining and dining him, according to Tanaka. Rather than inspecting the part, they spent the day playing golf and soaking in a hot spring, he said.
“The guy wouldn’t have known what he was looking at anyway,” Tanaka said. “The people at the utility have no idea how the parts are made.”
After a month of computer modeling, Tanaka came up with a way to use pumpjacks to pop out the sunken wall. While it would look like nothing had ever happened, no-one knew what the effect of the repair would have on the integrity of the vessel [..]
After the meltdown at Chernobyl in 1986, Tanaka was asked to narrate a Russian movie documenting the disaster. A team of Soviet filmmakers had taken 30 hours of footage inside the plant, getting very close to the ruptured core. The movie’s director died of radiation poisoning about a year after the filming. While watching the footage, Tanaka had a breakdown.
“All of a sudden I was sobbing and I started to think about what I’d done,” Tanaka said. “I was thinking, ‘I could be the father of a Japanese Chernobyl.’”
Two years later Tanaka says he went to the Trade Ministry to report the cover-up he’d been involved in more than a decade earlier. The government refused to investigate and Hitachi denied his accusations, he said.
“They said, if Hitachi says they didn’t do it, then there’s no problem,” Tanaka said. “Companies don’t always tell the truth.”
WikiLeaks: Japanese power companies hid nuclear safety problemsEighteen months before Japan’s radiation crisis, U.S. diplomats had lambasted the safety chief of the world’s atomic watchdog for incompetence, especially when it came to the nuclear power industry in his homeland, Japan.
Cables sent from the U.S. embassy in Vienna to Washington, which were obtained by WikiLeaks and reviewed by Reuters, singled out Tomihiro Taniuchi, until last year head of safety and security at the International Atomic Energy Agency (IAEA).
TEPCO, "Partial Meltdowns", and a Lack of Disaster Preparation at the Fukushima Nuclear PlantThe Fukushima nuclear power plant was built to withstand a magnitude 7.5 earthquake and a 5.7-meter-high tsunami. The March 11 earthquake measured 9.0 on the Richter scale and the tsunami was over 10 meters high. The Japanese nuclear establishment largely disregarded the potentially destructive force of tsunamis. The word did not even appear in government guidelines until 2006, decades after plants began dotting the Japanese coastline.
Norimitsu Onishi and James Glanz wrote in the New York Times, “Japanese government and utility officials have repeatedly said that engineers could never have anticipated the magnitude 9.0 earthquake ...that caused the sea bottom to shudder and generated the huge tsunami. Even so, seismologists and tsunami experts say that according to readily available data, an earthquake with a magnitude as low as 7.5 — almost garden variety around the Pacific Rim — could have created a tsunami large enough to top the bluff at Fukushima.
After an advisory group issued nonbinding recommendations in 2002, TEPCO... raised its maximum projected tsunami at Fukushima Daiichi to between 17.7 and 18.7 feet — considerably higher than the 13-foot-high bluff. Yet the company appeared to respond only by raising the level of an electric pump near the coast by 8 inches, presumably to protect it from high water.” “We can only work on precedent, and there was no precedent,” said Tsuneo Futami, a former Tokyo Electric nuclear engineer who was the director of Fukushima Daiichi in the late 1990s. “When I headed the plant, the thought of a tsunami never crossed my mind.
The intensity with which the earthquake shook the ground at Fukushima also exceeded the criteria used in the plant’s design...Japan is known for its technical expertise. For decades, though, Japanese officialdom and even parts of its engineering establishment clung to older scientific precepts for protecting nuclear plants, relying heavily on records of earthquakes and tsunamis, and failing to make use of advances in seismology and risk assessment since the 1970s.
For some experts, the underestimate of the tsunami threat at Fukushima is frustratingly reminiscent of the earthquake — this time with no tsunami — in July 2007 that struck Kashiwazaki. The ground at Kashiwazaki shook as much as two and a half times the maximum intensity envisioned in the plant’s design, prompting upgrades at the plant. “They had years to prepare at that point, after Kashiwazaki, and I am seeing the same thing at Fukushima,” said Peter Yanev, an expert in seismic risk assessment based in California, who has studied Fukushima for the United States Nuclear Regulatory Commission and the Energy Department.
Stoneleigh: The on-going Fukushima disaster, coming on top of the litany of safety violations, has unsurprisingly had a tremendous impact on public trust in relation to nuclear power. People are afraid of the radiation that they cannot detect, and do not trust any part of the Atomic Village to provide with accurate or timely information. They have learned where the priorities of its hive-mind lie. Concern over numerous other plants impacted by the earthquake and tsunami is rapidly developing. So is awareness of the vulnerability of other existing plants in different parts of the country to the same seismic risks which overcame the defences at Fukushima.
Water leaks from Onagawa atomic plant after latest quakeThe operator of a nuclear power station in north-eastern Japan said Friday that the company had found water leaks at the plant after a magnitude-7.4 earthquake overnight. Tohoku Electric Power Co, which runs the Onagawa Nuclear Power Plant in Miyagi prefecture, said water leaked from spent-fuel pools at two reactors and also from other parts of the plant.
Radiation leaks from fuel rods suspected” at Japan’s Tsuruga nuclear plant — Radioactive Xenon up 75,000%Leaks of radioactive materials from fuel rods have been suspected at a nuclear power plant in Tsuruga, the Fukui prefectural government said Monday, citing a rise in density of the toxic substances in coolant water [..]
According to Japan Atomic, 4.2 becquerels of iodine-133 and 3,900 becquerels of xenon gas were detected per cubic centimeter Monday, up from 2.1 and 5.2 becquerels, respectively, during previous measurements conducted last Tuesday.”
The entire region has a population of 18,644,000 over an area of 11,170 sq km. It is Japan's second most populated urban region after the Greater Tokyo Area, containing approximately 15% of Japan's population.
Government intervention necessary if Hamaoka nuke plant can't make decision to shut downSo what exactly is the problem with the Hamaoka Nuclear Power Plant?
First, it is located in the Shizuoka Prefecture city of Omaezaki, right atop the predicted epicenter of a great Tokai earthquake that experts have been warning for years will strike. According to Katsuhiko Ishibashi, a seismologist and professor emeritus at Kobe University, the surface of the fault where the quake is predicted to originate is located close to the surface of the ground, where the soil is soft, so if a major quake were to occur, severe ground upheaval cannot be avoided. This makes the site of the Hamaoka plant an unusually bad one for a nuclear power station.
In 2008, the government's Headquarters for Earthquake Research Promotion predicted that there was an 87-percent chance that a magnitude-8 range Tokai earthquake will occur in the next 30 years, and stepped up anti-disaster measures particularly in the Tokai region.
And yet, the Hamaoka plant has continued to run and has even been expanded, coming out victorious in lawsuits that sought to stop its operation, with the judge accepting the argument that the plant is capable of withstanding a magnitude-8 temblor. What about a magnitude-9 quake, then, like the one that struck on March 11?
Japan PM orders halt at Hamaoka nuclear plant"This is a decision made for the safety of the people when I consider the special conditions of the Hamaoka plant." Mr Kan said the government would work to prevent power supply problems arising from the decision. He said safety measures, including the construction of sea walls, would need to be implemented at the plant before operations resumed.
Stoneleigh: Seismic risks are always going to be a problem for Japanese nuclear power. Large earthquakes are occurring with increasing frequency, and Japanese plants are built on the coast for easy access to cooling water and relative remoteness from large centres of population. This leaves them inherently vulnerable to tsunamis.
A draft IAEA report on safety standards, published in October 2009, recommended that nuclear power plants be located more than 10 kilometres from the sea or ocean shoreline, or more than one km from a lake or fjord shoreline; or at an elevation of more than 50 metres from the mean water level.
The latest IAEA recommendations are far more stringent than the original standards set for Japanese plants. The six reactors at the Daiichi facility were commissioned between 1971 and 1979, while two other Japanese nuclear reactors date back to 1970.
“An anomalous magnitude 9.0 scale is far beyond the assumed safety standard when Fukushima Daiichi Nuclear Power Station started up forty years ago,” Yu Shibutani, director of Energy Geopolitics Ltd of Japan, said in an email to Reuters.
“The tsunami walls either should have been built higher, or the generators should have been placed on higher ground to withstand potential flooding, but it has failed.
“The accident exposes shortcomings in risk analysis as well as in engineering, and also the plant didn’t meet safety standards in both quake and tsunami wall.
Stoneleigh: When assessing the risk inherent in the use of nuclear power, we cannot ignore the human factor in any of its manifestations, including complacency in design in light of readily identifiable physical risks, failure to anticipate vulnerabilities to such factors as loss of power supply, unjustified trust in technological safety margins, poor training, a cavalier attitude towards maintenance, an incentive to cut corners in order to cut costs, collusion for the purpose of protecting an employer, misplaced loyalty, and a cosy relationship between the regulators and the regulated.
With technologies as sophisticated as nuclear power, and requiring competent management over generations at least, control can easily be an illusion, meaning that the risk of an accident can be far higher than the typical probabilistic risk assessment would suggest. Given that nuclear accidents can have catastrophic consequences, we should reconsider this particular method of boiling water.
We should also distrust those with vested interests in underplaying the risks. For a particularly egregious, and short-lived, past example of this latter tendency, you might like to watch this partially translated Japanese language "atomic propaganda" video.
The message is fairly clear from the images alone, and the child-like style in which they are presented by the character Plutonium-kun. However, check out the image at 7:26.
Plutonium kun also appeared in a 10-minute anime made about a decade ago by the Power Reactor and Nuclear Fuel Development Corporation (now the Japan Atomic Energy Agency), an industry body specializing in the development of fast-breeder and advanced-thermal reactors, an 'anime' that was swiftly withdrawn in part because of a scene in which Plutonium kun gets his boy pal to drink a glass of liquid plutonium while he sweetly intones that “I’m hardly absorbed by your stomach or intestines and I’m expelled by your body, so in fact I can’t kill people at all”.
Stoneleigh: Even in a land where serious issues are typically couched in terms of superficial 'cuteness', such a departure from reality still has tremendous power to shock.
US Home Market Takes a Tumble
by Nick Timiraos and Dawn Wotapka - Wall Street Journal
Steepest Quarterly Decline Since 2008
Home values posted the largest decline in the first quarter since late 2008, prompting many economists to push back their estimates of when the housing market will hit a bottom.
Home values fell 3% in the first quarter from the previous quarter and 1.1% in March from the previous month, pushed down by an abundance of foreclosed homes on the market, according to data to be released Monday by real-estate website Zillow.com. Prices have now fallen for 57 consecutive months, according to Zillow.
Last year, the housing market showed signs of improving as price depreciation slowed in some markets and stabilized in others. In response, a number of economists began forecasting that housing would hit a bottom in late 2011, then begin to recover. But the improvements, spurred by federal programs that gave buyers up to $8,000 in tax credits, proved fleeting. Sales collapsed when the credits expired last summer, and prices in many markets have been falling ever since.
While most economists expected sales to decline after tax credits expired, the drag on the market has been greater than many anticipated. "We expected December and January to be bad" as the market reeled from the after-effects of the tax credit, said Stan Humphries, Zillow's chief economist. But monthly declines for February and March were "really staggering," he said. They indicate "a reflection of the true underlying demand, which is now apparent because most of the tax credit is out of the system, and it's being completely overwhelmed by supply."
Mr. Humphries now believes prices won't hit bottom before next year and expects they will fall by another 7% to 9%. Other economists revised their forecasts. In April, the chief economist at mortgage company Fannie Mae, Doug Duncan, said home prices in the second quarter would be 5.3% lower than the previous-year period, down from his earlier estimate of a 2.6% decline. The estimates, which are based on data from the mid-1990s on, come from a proprietary computer program that takes into account sale prices for nearby homes that appear comparable, the size and other physical attributes of the home, its sales history and tax-assessment data, Mr. Humphries says.
Prices are decelerating in large part because the many foreclosed properties that often sell at a discount force other sellers to lower their prices. Mortgage companies Fannie Mae and Freddie Mac have sold more than 94,000 foreclosed homes during the first quarter, a new high that represented a 23% increase from the previous quarter. More could be on the way: They held another 218,000 properties at the end of March, a 33% increase from a year ago. The companies are bracing for more bad news: On Friday, Fannie reported a $6.5 billion net loss, largely as it boosted loan-loss reserves in anticipation of falling home prices.
Paul Dales, a senior U.S. economist with Capital Economics, says prices could fall by as much as 10%, down from his previous forecasts of around 5%. A March survey of more than 100 economists by MacroMarkets LLC forecasts a 1.4% drop in prices this year, down from the December estimate of a 0.2% decline.
Other home-price indexes also show weakness. The widely followed Case-Shiller index published by Standard & Poor's showed that prices climbed from April 2009 until last summer, when they started declining as tax credits expired. Today, prices are on the verge of reaching new lows, the index shows. The Case-Shiller index tracks repeat sales of previously owned homes using a three-month moving average.
According to the Zillow index, a handful of California markets and Washington, D.C., saw price appreciation last year, but that has since reversed. Mr. Humphries attributes the "double dip" in those markets, which include Los Angeles, San Francisco and San Diego, to the way in which the tax credit stimulated demand from buyers. When the tax credit went away, markets were left with rising supply from foreclosures but with less demand from buyers.
Detroit, Chicago and Minneapolis posted the largest declines during the first quarter of the top 25 metro areas tracked by Zillow, while Pittsburgh, Dallas and Washington posted the smallest declines.
To be sure, steep declines in home prices along with mortgage rates near their lowest levels in decades have helped make housing more affordable than at any time in the past 30 years, according to Zillow. Markets that have lower levels of foreclosures, such as Dallas, and those with better job-growth prospects, such as Washington, are faring better.
However, credit standards remain tight, posing another challenge for the housing market. Just as many unqualified borrowers received loans during the boom, "there are people today who probably could afford loans but can't get them," says David Berson, chief economist at PMI Group Inc. The average credit score on loans backed by Fannie Mae stood at 762 in the first quarter, up from an average of 718 for the 2001-2004 period.
Joe Sullivan, a real-estate agent in Stockton, Calif., is worried that more traditional buyers are seeing their loan applications canceled late in the process as lenders change qualification terms. If mortgage standards continue tightening, prices are "going to drop down to where only investors can get them, people with cash money," he said. Sales to absentee buyers, primarily investors, accounted for 47% of all Phoenix-area home sales in March, the highest level for any month in more than a decade, according to DataQuick, a real-estate research firm.
Christine Rice spent two years looking to buy a home in Los Angeles but found herself continually losing out to bids from investors offering to pay in cash. In September, she finally made a winning bid, paying $275,000 for a two-bedroom home. The prospect of falling prices "doesn't keep me up at night, but only because it was so cheap," says the 43-year-old tailor, who says she and her husband needed to move to have more space for their family. Her mortgage payments plus taxes are less than the rent she had been paying. "If it had been a stretch, then maybe I'd be worried," she says.
Buyers who qualify for mortgages are demanding bigger discounts as added insurance against further declines in values. Sellers, meanwhile, are balking. "More often, they don't want to take the first offer," says Jeffrey Otteau, president of Otteau Valuation Group, an East Brunswick, N.J., appraisal firm. "What they don't realize is, in an oversupplied market, the next offer is for less."
While some analysts have argued that home prices need to fall to "clearing prices" that will attract more buyers, price declines could also complicate any recovery by pushing more borrowers under water. Zillow estimates that more than 28% of borrowers owe more than their homes are worth nationally. Those numbers are much higher in hard-hit markets such as Phoenix, where more than two-thirds of borrowers owe more than their homes are worth.
No Respite From Housing Recession in First Quarter
by Stan Humphries - Zillow
Home values fell three percent in the first quarter of this year, marking a pace of decline not seen since 2008 when the housing recession was at its worst. Home values fell one percent between February and March and 8.2 percent from March 2010. The cumulative decline in home values since the market peak is now 29.5 percent (see Figures 1 and 2).
There was little escaping the housing downturn in Q1 2011. With only one metro showing positive year-over-year change (Honolulu MSA), and one remaining flat (Pittsburgh MSA), the vast majority of U.S. markets logged declines over the past 12 months. The metros hit hardest were geographically diverse with Ocala, FL, Pueblo, CO, Detroit and Atlanta experiencing the sharpest yearly declines.
Homes in the bottom price tier lost the most value in the first quarter, while homes in the top tier lost the least amount of value. The value of homes in the bottom tier fell 13.9 percent year-over-year, while homes in the middle tier fell 8.7 percent and homes in the top tier fell 4.3 percent.
Nearly three-quarters (74.5 percent) of homes in the United States lost value from Q1 2010 to Q1 2011. That’s up from Q4 2010, when 69.2 percent had lost value, but is down substantially from a peak of 85.5 percent in Q1 2009.
A record (37.7 percent) number of homes sold in March were sold for a loss. The rate of homes selling for a loss has steadily increased since June 2010.
Negative equity in the first quarter reached new high with 28.4 percent of all single-family homes with mortgages underwater, from 27 percent in Q4.
Foreclosure liquidations rose throughout the first quarter after falling in late 2010 following the "robo-signing" controversy. In March, one out of every 1,000 (0.1 percent) homes in the country was lost to foreclosures, up from 0.09 percent in in December 2010, their lowest point since November 2009 (see Figure 3).
Foreclosure re-sales reached a new peak in March 2011, representing 23.7 percent of all sales during the month compared to 17 percent in March 2010. Foreclosure re-sales have been increasing steadily since June, when they made up 14 percent of all sales.
Because of the strong depreciation in the first quarter, we’ve revised our forecast for the total home value decline nationally in 2011 to 7-9 percent (previously 5-7 percent) and our forecast of the bottom from late 2011 to 2012 at the earliest. As always, our expectation post-bottom (where we define the bottom as the end of consistent monthly depreciation) is for a long period of below-normal real estate appreciation during which time we work out the remaining overhang of excess housing supply.
Housing demand remains fundamentally weak but will see some improvement in the balance of this year due to slowly improving employment conditions and increasing rates of household formation. We believe, however, that this somewhat improving picture on the demand side will be largely offset by excess supply. The supply picture continues to look bad with approximately two million homes in the foreclosure process and another more than 1.5 million homes seriously delinquent. While delinquencies do appear to be declining recently, we believe that rates will remain much higher than normal for a considerable period of time due to high negative equity rates and elevated unemployment.
Why America’s ‘zombie consumers’ won’t be coming back to life soon
by Brian Milner - Globe And Mail
Economy watchers looking for a spark of life in the exhausted, debt-ridden American consumer are quick to latch on to any signs of a pulse. The latest came in the form of higher personal borrowing in March. The $6.02-billion (U.S.) increase marked the sixth consecutive monthly advance and was nearly three times higher than the most bearish forecasts. And the best news of all: Credit-card debt climbed, marking only the second such rise since the housing and credit market collapse.
Getting American consumers back to their free-spending ways is the fervent hope of just about every economy planner on the planet. The old shopping habits of these once thoroughly dependable mall people formed the very foundation on which broad Western prosperity and strong growth in China and the rest of the emerging world were built. But so far, the recovering shopaholics continue a distressing pattern of retrenchment, a trend undoubtedly intensified by plunging housing values and higher fuel and food costs.
U.S. consumer spending rose only 2.7 per cent in the first quarter, down sharply from 4 per cent in the last three months of 2010. Which is no trivial matter, considering that the consumer accounts for about 70 per cent of the U.S. economy, down from 71.3 per cent at the precrisis peak. (The Canadian level reached 64 per cent last year, up from 56 per cent in 2000). The U.S. consumer share will continue shrinking until it returns to about the 66-per-cent level that prevailed for much of the last quarter of the 20th century, putting a big dent in GDP, prominent Wall Street economist Stephen Roach was saying the other day. "We’re only 20 per cent of the way there."
Annual growth in real U.S. consumption totalled close to 4 per cent before the financial crisis struck in 2007. If the current trend continues, it will be closer to half that amount, Mr. Roach said in Toronto before addressing a business audience gathered at Grano restaurant for its popular salon speakers series. "It’s not a pretty picture," added Mr. Roach, a Yale University fellow who made his considerable reputation as a long-time, often bearish, chief economist with Wall Street heavyweight Morgan Stanley, before turning his attention to China and other rising Asian economies.
Before the crisis, American consumption was soaring not because of income growth or rising employment but because "we levered an asset bubble. We extracted money from overvalued property. And that’s over. … Consumers are stuck with a legacy of excessive debt, inadequate saving, and facing high unemployment, higher underemployment, weak incomes and holding on to assets that are under water."
No wonder he declares that "the American consumer is toast." Higher exports and increased capital spending could help the U.S. economy weather the consumer’s demoralizing decline. "But I would say reduce your estimates of trend GDP growth in the U.S. over the next three to five years by at least one percentage point. That’s a big deal."
Indeed it is. And it’s a shift that hasn’t been lost on China, which has embarked on an ambitious plan to change its economic model from one focused on export manufacturing geared toward those U.S. shoppers to one centred on services and domestic Chinese consumption.
"A post-crisis generation of ‘zombie consumers’ in the U.S. is likely to hobble growth in global consumption for years to come. And that means that export-led developing Asia now has no choice but to turn inward and rely on its own 3.5 billion consumers," Mr. Roach wrote recently in an Asian publication. "I think China gets it, in terms of dealing with its imbalances," says Mr. Roach, non-executive chairman of Morgan Stanley Asia and author in 2009 of The Next Asia. "China will draw down surplus savings, its current account surplus and slow its rate of foreign-currency reserve accumulation and naturally reduce its demand for dollar-based assets."
But on the other side of the ledger, the United States will remain stuck with the world’s largest current account deficit and a worsening fiscal and economic outlook. "The debate in Washington tells me that we don’t get it. We don’t feel the pressure, the urgency to address our savings shortfall. The budget debate would be comical if it didn’t have such tragic implications for the future of the United States."
The outcome could be "an asymmetrical rebalancing of the global economy, where the biggest surplus saver [China] moves in a credible way to boost internal private consumption, but the biggest deficit saver does very little."
I ask whether this increases the chances of the world sliding back into recession. "I’m not prepared to turn in my stripes as a card-carrying double-dipper," Mr. Roach says. "The lessons of centuries and centuries of financial history … make it very clear that post-crisis recoveries are weak. When they’re weak for a long period of time, they lack the cushion that economies normally need to withstand the blows of a shock. So I don’t think you can rule it out."
Why I Won't Support More Bailouts
by Timo Soini - Wall Street Journal
Insolvency must be purged from Europe's system and it must be done openly and honestly.
When I had the honor of leading the True Finn Party to electoral victory in April, we made a solemn promise to oppose the so-called bailouts of euro-zone member states. These bailouts are patently bad for Europe, bad for Finland and bad for the countries that have been forced to accept them. Europe is suffering from the economic gangrene of insolvency—both public and private. And unless we amputate that which cannot be saved, we risk poisoning the whole body.
The official wisdom is that Greece, Ireland and Portugal have been hit by a liquidity crisis, so they needed a momentary infusion of capital, after which everything would return to normal. But this official version is a lie, one that takes the ordinary people of Europe for idiots. They deserve better from politics and their leaders. To understand the real nature and purpose of the bailouts, we first have to understand who really benefits from them. Let's follow the money.
At the risk of being accused of populism, we'll begin with the obvious: It is not the little guy that benefits. He is being milked and lied to in order to keep the insolvent system running. He is paid less and taxed more to provide the money needed to keep this Ponzi scheme going. Meanwhile, a kind of deadly symbiosis has developed between politicians and banks: Our political leaders borrow ever more money to pay off the banks, which return the favor by lending ever-more money back to our governments, keeping the scheme afloat.
In a true market economy, bad choices get penalized. Not here. When the inevitable failure of overindebted euro-zone countries came to light, a secret pact was made. Instead of accepting losses on unsound investments—which would have led to the probable collapse and national bailout of some banks—it was decided to transfer the losses to taxpayers via loans, guarantees and opaque constructs such as the European Financial Stability Fund, Ireland's NAMA and a lineup of special-purpose vehicles that make Enron look simple. Some politicians understood this; others just panicked and did as they were told.
The money did not go to help indebted economies. It flowed through the European Central Bank and recipient states to the coffers of big banks and investment funds.Further contrary to the official wisdom, the recipient states did not want such "help," not this way. The natural option for them was to admit insolvency and let failed private lenders, wherever they were based, eat their losses. That was not to be. As former Finance Minister Brian Lenihan recently revealed, Ireland was forced to take the money. The same happened to Portuguese Prime Minister José Sócrates, although he may be less forthcoming than Mr. Lenihan about admitting it.
Why did the Brussels-Frankfurt extortion racket force these countries to accept the money along with "recovery" plans that would inevitably fail? Because they needed to please the tax-guzzling banks, which might otherwise refuse to turn up at the next Spanish, Belgian, Italian, or even French bond-auction.
Unfortunately for this financial and political cartel, their plan isn't working. Already under this scheme, Greece, Ireland and Portugal are ruined. They will never be able to save and grow fast enough to pay back the debts with which Brussels has saddled them in the name of saving them. And so, unpurged, the gangrene spreads. The Spanish property sector is much bigger and more uncharted than that of Ireland. It is not just the cajas that are in trouble. There are major Spanish banks where what lies beneath the surface of the balance sheet may be a zombie, just as happened in Ireland for a while. The clock is ticking, and the problem is not going away.
Setting up the European Stability Mechanism is no solution. It would institutionalize the system of wealth transfers from private citizens to compromised politicians and otherwise failed bankers, creating a huge moral hazard and destroying what remains of Europe's competitive banking landscape.
Some defend the ESM, saying its use would always require unanimity. But the current mess with Portugal shows that the elite in Brussels will seek to enforce unanimity through pressure when it cannot be obtained by persuasion. Abolishing unanimity is only a matter of time. After that we have a full-fledged fiscal transfer union that is obviously in hock to Brussels' anti-growth corporatism.
Fortunately, it is not too late to stop the rot. For the banks, we need honest, serious stress tests. Stop the current politically inspired farce. Instead, have parallel assessments done by regulators and independent groups including stakeholders and academics. Trust, but verify.
Insolvent banks and financial institutions must be shut down, purging insolvency from the system. We must restore the market principle of freedom to fail. If some banks are recapitalized with taxpayer money, taxpayers should get ownership stakes in return, and the entire board should be kicked out. But before any such taxpayer participation can be contemplated, it is essential to first apply big haircuts to bondholders.
For sovereign debt, the freedom to fail is again key. Significant restructuring is needed for genuine recovery. Yes, markets will punish defaulting states, but they are also quick to forgive. Current plans are destroying the real economies of Europe through elevated taxes and transfers of wealth from ordinary families to the coffers of insolvent states and banks. A restructuring that left a country's debt burden at a manageable level and encouraged a return to growth-oriented policies could lead to a swift return to international debt markets.
This is not just about economics. People feel betrayed. In Ireland, the incoming parties to the new government promised to hold senior bondholders responsible, but under pressure, they succumbed, leaving their voters with a sense of democratic disenfranchisement. The elites in Brussels have said that Finland must honor its commitments to its European partners, but Brussels is silent on whether national politicians should honor their commitments to their own voters. In a democracy, where we govern under the consent of the people, power is on loan. We do what we promise, even if it costs a dinner in Brussels, a "negative" media profile, or a seat in the cabinet.
When in Europe's long night of 1939-45, war came to Finland with the winter blizzards, my mother was one of eight siblings being raised on a small farm in central Finland where my grandparents eked out a frugal living. My two young uncles rushed to the front and were both wounded in action during Finland's chapter of Europe's most terrible bloodshed. I was raised to know that genocidal war must never again be visited on our continent and I came to understand the values and principles that originally motivated the establishment of what became the European Union.
This Europe, this vision, was one that offered the people of Finland and all of Europe the gift of peace founded on democracy, freedom, justice and subsidiarity. This is a Europe worth having, so it is with great distress that I see this project being put in jeopardy by a political elite who would sacrifice the interests of Europe's ordinary people in order to protect certain corporate interests.
Europe may still recover from this potentially terminal disease and decline. Insolvency must be purged from the system and it must be done openly and honestly. That path is not easy, but it is always the right path—for Finland, and for Europe.
Mr. Soini is the chairman of the True Finns Party in Finland.
EU under pressure to slash ruinous Irish and Greek bailout bills
by Phillip Inman - Guardian
Ireland's prime minister heaped pressure on Brussels on Mondayto make concessions over his country's interest bill amid chaotic discussions between European Union finance ministers over the fate of the eurozone bailout funds.
With some kind of deal for Greece appearing all but inevitable, Enda Kenny said there was a question mark over Ireland's ability to meet its debt obligations without a cut in interest on its €85bn (£74.4bn) bailout package. Kenny's intervention came after a flurry of meetings and phone calls between ministers aimed at striking a compromise deal that would reduce the cost of loans to Greece and Ireland and prevent a disorderly debt restructuring.
Renewed efforts to stitch together a package of concessions have come under heavy fire from international investors as inadequate, with many arguing that the eurozone's creditor nations – including France, Germany and the Netherlands – need to offer better terms to stave off a Greek default on a large proportion of its debts.
The country's labour minister said that it was in talks with its eurozone partners to cover its ruinous funding gap. "The initial plan was for Greece to return to markets (to raise €27bn) in 2012. At this moment this appears difficult," Louka Katseli told Reuters. "Discussions are taking place at a European level to explore alternative responses."
Ratings agency Standard & Poor's increased the pressure after it suggested more radical measures would be required to make Greece's €327bn debt mountain sustainable, saying Athens may need to renege on 50% or more, implying big losses for investors. S&P downgraded Greece's credit rating further into junk territory – from BB- to B – sparking a furious riposte from the Greek finance ministry, which accused the agency of basing decisions on market rumours "that seriously cast in doubt [their validity]".
However, sustained efforts by the Athens administration to deflect criticism of its attempts to rejuvenate the economy have so far failed with international money markets sending the cost of insuring its debts up 19 basis points to a record 1,360, according to data provider CMA, signalling a 68% probability of default within five years. Swaps on Ireland reached an all-time high of 676 basis points, and contracts on Portugal also rose. The euro was down 0.4% at $1.4308, the lowest for three weeks, bringing its losses over the last four trading days to 3.8%, the biggest four-day drop since May 2010.
The EU executive attempted to calm the markets, saying it hoped for a decision within weeks on reducing the rate charged to Ireland to make Dublin's debt more sustainable. "The commission is clearly in favour of a rate cut," said Olli Rehn, EU commissioner for economic and monetary affairs. "The commission is against debt restructuring."
Yet Kenny, under intense pressure to strike an improved deal, told parliament a deal was only a matter of days away. "There is no doubt that a reduction in the interest rate on the monies we are borrowing from Europe would be a meaningful and appreciated measure," he said, before predicting it could be delivered at a eurozone finance ministers meeting next week.
His government's bid for lower interest payments has so far been blocked by Germany and France, who want Dublin to drop its veto on harmonising the corporate tax base in Europe or raise its own low rate. Kenny made clear he would not consent to raise corporation tax.
In Germany, a senior member of chancellor Angela Merkel's conservative party said a further cut in the rate on emergency loans to Greece, already reduced by one percentage point in March, would be justified if it carried out further reforms to reduce its debt risk. Michael Meister told German radio he opposed any idea that Athens should restructure its debt or consider leaving the eurozone.
The calls for lower interest rates came after a select group of top eurozone policymakers held not-so-secret talks in Luxembourg on Friday evening on how to stem the currency bloc's deepening sovereign debt crisis. One of the German government's economic advisers, Peter Bofinger, told Reuters Insider television that unless there was a comprehensive solution for all eurozone debt problems: "I'm not sure whether the euro area will remain intact for the next 12 months".
Greece angered by S&P rating cut
by Louise Armitstead - Telegraph
Investors in Greek debt may have to write-off 50% of their loans "or more" if financial stability is to be restored to the beleaguered country, a leading rating agency warned.
Standard & Poor's said that "there is increased risk that Greece will take steps to restructure" its €110bn (£97bn) bail-out package which would result in a "distressed exchange" for bondholders. At the same time, the rating agency cut Greece's credit rating from BB- to B, dragging its debt further into junk territory to reflect its more gloomy views.
Greece hit back at the downgrade, angrily denying any imminent restructuring. The Greek finance ministry said that there have been "no new developments or decisions since the last rating action" by S&P a month ago so the agency's views were "not justified." In a statement, the ministry added: "Decisions by ratings agencies must be based on objective data, policy makers' announcements and realistic assessments on the conditions facing an economy... When such decisions are based simply on rumours, their validity is seriously cast in doubt".
The fresh fears were sparked after it emerged over the weekend that secret talks had taken place in Luxembourg on Friday between Athens and some of the key European financial leaders. Rumours quickly spread that Greece had said it will not be able to raise €22bn by next year to meet its repayment schedule and was seeking a re-negotiation of the rescue package.
The debt markets lurched in response, impacting all three countries that have been bailed-out. The cost of insuring Greek, Irish and Portuguese national debt against default rose and shares across Europe. The euro also fell against the dollar for the fourth day in a row. Jeremy Stretch head of currency strategy at CIBC World Markets in London, said: "The Greek situation is like a slow motion car crash. The politicians know they have to dip into the pockets to find a solution to the problems facing Greece."
Officials said the European Commission was looking to lower interest rates on the bail-out loans to both Greece and Ireland in an effort to avoid any restructuring. A spokesman for Olli Rehn, the EU commissioner in charge of economic and monetary affairs, told reporters: "We hope for an agreement on an interest rate reduction in the coming weeks that can support Irish debt sustainability...The Commission is against debt restructuring."
A spokesman for the German Finance Ministry Martin Kotthaus told a news conference: "There is no discussion at the moment about extending the payment schedule or lowering the interest rates for Greece."
The 'troika' of the European Commission, the European Central Bank and the International Monetary Fund (IMF) are this week expected to work on ways to relieve the pressure on the stricken countries ahead of a meeting of European finance ministers on Monday 16th May. As an alternative to reducing interest rates, the leaders could allow Greece to use Brussels' emergency funding mechanism, the European Financial Stability Facility (EFSF), to roll over its maturing debts.
Separately, the Bank of Ireland announced the sale of its foreign currency exchange unit to Wells Fargo, the San Francisco-based bank. The Irish bank refused to give details of the sale of Foreign Currency Exchange Corporation but said it would have a negligible impact on the group's capital position.
The political causes of a not-so-secret meeting
by Wolfgang Münchau - Financial TImes
They cannot even organise a private meeting. How can they then solve a debt crisis? The bungling of a not-so-secret gathering of finance ministers in Luxembourg on Friday night provides an object lesson in how the politics of eurozone crisis resolution are going wrong.
We learnt this from a leak to Spiegel Online. The German news site’s story said Greece was considering leaving the eurozone, and that finance ministers were holding a secret meeting to discuss the issue. The story also offered the intriguing detail that Wolfgang Schäuble, the German finance minister, had a report in his briefcase warning him of the prohibitive costs of a Greek exit.
Earlier that Friday evening, the spokesman for Jean-Claude Juncker, the Luxembourg prime minister who also has responsibility for finance, flatly denied that was the meeting was taking place at all. That statement was obviously untrue. The meeting ended on Friday night with the announcement that there was no discussion on a Greek exit or a Greek restructuring. I very much doubt that this statement – or indeed any official statement on the eurozone crisis – was true either.
It is my understanding that this meeting, and numerous others preceding it, discussed the whole gamut of options, including, of course, a restructuring of Greek debt. But the fact that options are being discussed does not mean they are being pursued. I am fairly sure Greece is not preparing to leave the eurozone, and that the European Union rejects an involuntary debt restructuring – for now that is.
The reason for the frantic diplomatic activity is that the eurozone is running out of easy options for dealing with Greek debt. There are valid objections to every proposal. An exit is too risky. A haircut – a discount on the outstanding principal for creditors – would kill the country’s banking system and land the European Central Bank with losses approaching €100bn. A voluntary restructuring would not do enough to reduce the net present value of Athens’ debt to a sustainable level.
I understand ministers have also discussed collateralised lending – swapping old Greek bonds into new collateralised debt at a discount. This would subordinate every Greek bondholder, including of course the ECB. The option to swap bonds of the European financial stability facility, the rescue umbrella, into peripheral bonds has been explicitly rejected by Berlin. This would probably have been the cheapest option but Germany wanted to nip in the bud anything that smells of a eurozone bond.
The core issue in the eurozone crisis is not the overall size of the peripheral countries’ sovereign debt. This is tiny relative to the monetary union’s gross domestic product. The area’s total debt-to-GDP ratio is lower than that of the UK, America or Japan. From a macroeconomic point of view, this is a storm in a teacup.
The problem is that the eurozone is politically incapable of handling a crisis that is now contagious and has the potential to cause huge collateral damage. The "grand bargain" – a series of institutional agreements on eurozone sovereign debt by the European Council in March – did not address the resolution of the current crisis. That process is starting only now. Those responsible have realised that, no matter which debt management option they choose, it will cost taxpayers hundreds of billions. It is highly unlikely states will accept fiscal transfers of such a size without imposing extreme conditions on one another.
The political reason this crisis goes from bad to worse is an unresolved problem of collective action. Both sides are at fault. The tight-fisted, economically illiterate northern parliamentarian is as much to blame as the southern prime minister who cares only about his own backyard. The Greek government played it relatively straight but Portugal’s crisis management has been, and remains, appalling.
José Sócrates, prime minister, has chosen to delay applying for a financial rescue package until the last minute. His announcement last week was a tragic-comic highlight of the crisis. With the country on the brink of financial extinction, he gloated on national television that he had secured a better deal than Ireland and Greece. In addition, he claimed the agreement would not cause much pain. When the details emerged a few days later, we could see none of this was true. The package contains savage spending cuts, freezes in public sector wages and pensions, tax rises and a forecast of two years’ deep recession.
You cannot run a monetary union with the likes of Mr Sócrates, or with finance ministers who spread rumours about a break-up. Europe’s political elites are afraid to tell a truth that economic historians have known forever: that a monetary union without a political union is simply not viable. This is not a debt crisis. This is a political crisis. The eurozone will soon face the choice between an unimaginable step forward to political union or an equally unimaginable step back. We know Mr Schäuble has contemplated, and rejected, the latter. We also know that he prefers the former. It is time to say so.
Greece bailout fails to halt debt woes
by Ian Traynor, Helena Smith, Nicholas Watt and Lisa O'Carroll - Guardian
Secret talks reveal Greece is unable to meet obligations under last year's €110bn eurozone rescue package
The eurozone's first ever bailout of a debt-laden member country is failing and will need to be renegotiated exactly a year after the €110bn (£96bn) rescue package was agreed for Greece.
Following secret talks in Luxembourg on Friday between Athens and some of the key EU players, it emerged that Greece will not be able to meet the terms of last year's rescue and is hoping to ask the eurozone for more funds.
As Britain made clear it did not want to offer any more support for Greece as part of an EU package or a bilateral loan, investors remain unconvinced of the ability of Athens to sustain its €340bn debt load.
Signalling that his government will struggle to finance itself on the bond markets by next year – which was part of the deal struck with the eurozone and the IMF – the Greek finance minister, George Papaconstantinou, said: "We will either go out to markets or use the recent decision by the EU that allows the European fund to buy Greek bonds. The markets continue to disbelieve in our country."
His trip to Luxembourg had been kept so quiet in Athens that only the prime minister, George Papandreou, knew about the discussions, which were led by Jean-Claude Juncker, the Luxembourg prime minister and president of the group uniting the 17 countries using the single currency. Juncker confirmed that the Greek bailout would need to be renegotiated amid alarmist reports that the country was contemplating reintroducing the drachma.
After the talks – attended by the finance ministers of Germany, France, Italy and Spain as well as Olli Rehn, European monetary affairs commissioner – Juncker said the Greek package needed a "readjustment". Haggling over a new Greek deal is set to dominate the weeks ahead. EU finance ministers will debate the topic next week and the Germans, in particular, are digging in their heels.
The chancellor, George Osborne, made clear that Britain felt it had done enough to support Greece. He told the Andrew Marr Show: "We certainly don't want to be part of any bailout of Greece, a second bailout. There are some very difficult questions that Greece has to address now because the whole assumption when the eurozone put together a rescue package last year was that Greece could come back into the market next year and borrow. The market is quite sceptical about that happening, and I suspect a lot of my time over the next few weeks is going to be with other European finance ministers and others talking about how we try and help the Greeks get through this situation."
Britain provided a bilateral loan to Ireland last year, but Osborne said: "I can't see us ever writing a cheque directly from the British taxpayer to the Greeks or the Portuguese or indeed anyone else. Ireland was a special case."
Over the weekend, tensions mounted in Ireland after the Irish Central Bank governor was accused of contributing to Ireland's financial crisis by woefully "miscalculating" the extent of losses in the country's banks. The attack on Patrick Honohan came amid reports that the IMF-European Union and European Central Bank troika had agreed a behind-the-scenes interest rate cut in Ireland's €85bn bailout which could save the country £400m a year.
Experts from the troika are arriving in Athens amid heightened urgency over the handling of the crisis. The Greek government had hoped that the announcement of a mid-term fiscal plan, whose centrepiece is a €50bn privatisation program, would help assuage the criticism of the socialist government's recent performance in implementing a draconian programme of fiscal consolidation.
The normally cool Papaconstantinou appeared uncharacteristically glum after the meeting where sources said Greece had used the occasion to press ahead with its request that eurozone member states soften the terms of the agreement reached on the bailout loans by further extending repayment deadlines. Adding to the ever growing sense of a government under siege Papandreou slammed critics at the weekend saying: "I call upon everyone in Greece and abroad, and especially in the EU, to leave Greece alone to do its job in peace."
UK faces £9 trillion ($14.7 trillion) savings shortfall
by Josephine Moulds - Telegraph
Britons need to save £16,700 more per year to live comfortably, cover long-term care costs, and pay back debts in their retirement. The country faces a staggering £9 trillion shortfall in savings to support the next generation after they stop work, according to a report from the Chartered Insurance Institute (CII).
"Currently, many pre-retirees have little savings and carry the burden of significant debts just at a time when their incomes are about to fall," it says. A spokesman for the CII added: "A lot of people are going to have their assets depleted by parents' long-term care costs or their own."
The report says the average care home costs £26,000 per year and the average stay is two years, although a significant proportion of people stay for more than four. That will rocket as people start to live longer. The proportion of very old people will grow the fastest, says the report, with the number of people over 90 expected to nearly treble over the next 20 years.
The CII insists the taxpayer will only be able to foot part of the bill. Steve Webb, minister for pensions, agrees: "The next generation will face a different world, with increasing life expectancy, the decline in final salary schemes and lower annuity rates. They are going to have to take greater responsibility for saving for their retirement."
Pensioners currently only receive 30pc of their former salary on average during retirement, says the OECD. It believes that needs to rise to around 70pc for people to enjoy a similar standard of living in retirement as when they were working.
The news comes after John Cridland, director general of the CBI, said charges for the government's new low-cost pension scheme were too high. The National Employment Savings Trust, where millions of the lower paid will be automatically enrolled, will charge the equivalent of 0.43pc a year.
Muni debt set for $29 billion refinancing
by Nicole Bullock and Aline van Duyn - Financial TImes
US states, cities and other local entities are gearing up to refinance a record $29bn of expiring bank guarantees this quarter, which have to be completed to avoid potential credit rating downgrades and defaults. If the guarantees are not refinanced, borrowers, such as states or cities, could have to pay much higher interest rates on the bonds backed by the guarantees and be forced to repay them more quickly.
Almost all of the bank guarantees that expired in the first quarter have been refinanced, according to Moody’s Investors Service, which estimates that $130bn of bank guarantees on municipal debt expire in 2011.
However, with the pace of refinancing rising sharply in the second quarter, and with many banks having pulled out of this market since the crisis, Moody’s said it was still concerned that refinancing might be difficult and that this could put pressure on the weakened finances of many municipal borrowers. "It is the biggest source of refinancing risk facing US municipal issuers," said Naomi Richman, managing director in Moody’s public finance group.
Municipal issuers that are unable to renew the guarantees or find alternatives for these schemes "are vulnerable to potentially severe and rapid credit deterioration", Moody’s said in a report issued on Monday.
US state and local governments have been under pressure since tax revenues plunged amid the recession. Growth in some areas continues to be sluggish.
Banks’ willingness to lend has also reduced. Before the crisis, many European banks had moved into the market for "letters of credit" and other support for municipal debts. Now, lenders are mainly domestic US banks. Moody’s said 57 per cent of new guarantees agreed to in the first quarter were made by three banks: JPMorgan Chase, Bank of America and Wells Fargo. In addition, uncertainty about capital rules means banks are reluctant to lend beyond 2014, Moody’s said.
New Basel III rules could make lending more expensive. As a result, most new guarantees have a shorter lifespan than pre-crisis deals, which means new deals cut now will have to be refinanced sooner. The wave of expiring bank deals supporting municipal debt is part of the fallout of the financial crisis. There was a big issuance of this type of debt at the end of 2007 and in 2008 to restructure auction rate securities.
The ARS market collapsed when bond insurers, which backed a large chunk of the municipal market, lost their triple A credit ratings on risky mortgage debt that they also guaranteed. Most of the replacement deals had three-year letters of credit or backstop purchase agreements from banks, resulting in the spike in expirations now.
Illinois pension fund could run out
by Thomas Verschelde - Northern Star
The pension funds of many occupations around Illinois, including teachers, are in jeopardy of running out soon. A pension is a payment made to a retiree or surviving dependents under certain conditions.
The funds are in jeopardy of running out because the state government has been slowly taking from the pension fund over time, said Lindsey Hall, assistant superintendent of Human Resources of DeKalb School District 428. "Our state government must stop borrowing from Teacher Retirement System (TRS) to pay down other debt," Hall said.
Even though the state is taking money out, this does not mean that the fund will dry up any time soon. "Everyone who is currently retired is getting their pensions," said DeKalb Mayor Kris Povlsen. "The only way the pension fund would run out is if everyone in the workforce retired today, then there would not be enough money to pay everyone’s pensions." To ensure that all retired teachers will maintain their current standard of living, the Illinois state government does increase pensions to teachers by 3 percent each year, Hall said.
Another problem facing new teachers is a new pension reform law that was passed Jan. 1. The reform law raises the retirement age to 67 and caps the amount of pension a retiree can receive in retirement. Teachers working before the law passed are not affected; only newly hired teachers will be affected, Hall said.
Teaching is a lifestyle choice, said Roger Scott assistant superintendent of curriculum, instruction, and assessment for District 428. Teachers immerse themselves in the lives of their students and for some people, teaching is the perfect profession.
"Teaching is one of the most noble and honorable professions, especially teaching in a public school," Hall said. "I don’t discourage students from pursuing their dreams of teaching. A teacher can plan and prepare for retirement outside of the TRS. While they still must contribute to TRS, everyone should responsibly save for the future, especially in uncertain economic times."
Digging Still Deeper In Friday's Jobs Report; What's the Real Unemployment Rate?
by Mike 'Mish' Shedlock - Global Economic Analysis
Every month the government posts the unemployment rate yet few know where the unemployment rate comes from, how it is determined, and the relationship between the unemployment rate and the monthly reported jobs total.
For a quick recap, the unemployment rate comes from a "Household Survey" while the reported headline jobs total comes from the "Establishment Survey". The former is a monthly phone survey, the latter is a sample of actual business employment.
The reason for the "Household Survey" is that it will pick up new business formation, especially small businesses that might not be on the radar of the "Establishment Survey" sample. Even if the "Establishment Survey" sample size was 100%, unless duplicate names were weeded out, it would double-count those holding multiple jobs.
The "Household Survey" attempts to determine five key items.
- Do you have a job?
- Is so was it full or part-time?
- If not, do you want a job?
- If you do not have a job and want a job, did you look for a job in the last 4 weeks?
- Are you in school, on leave, etc.
The BLS does not ask the questions like that, instead the BLS attempts to determine those answers by a detailed list of questions.
For a discussion of exactly what questions the BLS asks to determine the unemployment rate, please see Reader Question Regarding "Dropping Out of the Workforce"; Implications of the Falling Participation Rate
Definition of Unemployed
Logically, one might think one would be unemployed if they want a job and do not have a job.
However, the official definition of unemployed is you do not have a job, you want a job, and crucially, you have looked for a job in the last 4 weeks.
Every month the government reports "alternative" numbers but even though many of the alternate numbers are a more accurate representation of the unemployment rate, the media focuses on the headline number, ignoring millions who have "dropped out of the labor force" simply because they stopped looking for work.
Millions more are in "forced retirement", which I define as someone over 60 whose unemployment benefits ran out so they retired to collect Social Security even though they really want a job.
244,000 Jobs Added Last Month, So Why Did the Unemployment Rise?
Last month many were surprised to see the jobs report claim 244,000 jobs were added yet the unemployment rate ticked up 2 tenths from 8.8% to 9.0%.
The widely proclaimed reason from mainstream media was that jobs were more plentiful and because more people were looking for jobs.
That explanation makes sense on the surface in light of the official definition of unemployment (you had to have looked for a job in the last 4 weeks to be counted as unemployed). However, the explanation does not stand up to scrutiny.
The fact is, employment fell by 190,000 according to the Household Survey and another 131,000 people dropped out of the labor force last month or the unemployment would have been even higher. Fewer people (131,000 to be precise) wanted a lob and looked for jobs in April than in March.
The Obama administration as well as mainstream media wants to play job numbers both ways, that is to say they want to use the Household Survey when it suits their purpose and the Establishment Survey otherwise.
Regardless, close scrutiny of the details in the report shows the headline numbers were far worse than they looked.
I commented on that in my Friday post BLS Jobs Report: Nonfarm Payroll Headline Number Looks Good, Beneath the Surface, Awful where I said ...In the last year, the civilian population rose by 1,817,000. Yet the labor force dropped by 1,099,000. Those not in the labor force rose by 2,916,000. In January alone, a whopping 319,000 people dropped out of the workforce. In February another 87,000 people dropped out of the labor force. In March 11,000 people dropped out of the labor force. In April, 131,000 dropped out of the labor force. The 4-month total for 2011 is 548,000 people dropped out of the labor force.Ilargi at Automatic Earth Blog in Trojan Lies picked up on my post and commented "Indeed, I’d venture that if you add in all those who’ve left the work force since 2008, you’d end up way above 11%. All in all, the total number of people in the working age population who are not in the labor force hit a new all time high of 86.248 million in April. And Wall Street likes that."
Many of those millions who dropped out of the workforce would start looking if they thought jobs were available. Indeed, in a 2-year old recovery, the labor force should be rising sharply as those who stopped looking for jobs, once again started looking. Instead, an additional 548,000 people dropped out of the labor force in the first four months of the year. Were it not for people dropping out of the labor force, the [U3] unemployment rate would be well over 11%.
The math is simple enough, so let's see if Ilargi is correct.
From the latest BLS Jobs Report Table A1 Household Data
Civilian Labor Force: 153,421,000
Not in the Labor Force (April 2011 vs April 2010): 85,725,000 - 82,809,000 = 2,916,000
If those who dropped out of the labor force in the past year were added back into the labor force (adding 2,916,000 to both the labor force and the number of unemployed) the totals would look like this:
Revised Civilian Labor Force: 156,337,000
Revised Unemployed: 16,663,000
Revised Unemployment Rate = 16,663/156,337 = 10.6%
Unemployment Math Since April 2008
The above number is just for the past year. Ilargi wanted to go back to 2008.
Those not in the labor force as noted in the April 2008 Employment Report = 79,241,000
Those not in the labor force today = 85,725,000
Since April 2008 6,484,000 dropped out of the labor force.
If we add those back into the labor force and to the unemployed, the math look likes this:
Civilian Labor Force: 159,905,000
Revised Unemployment Rate = 20,231/159,905 = 12.7%
So Ilargi was correct to assume "way above 11%".
Unemployment Math Take III
Bear in mind some of those people retired because they wanted to, some died, some are too sick to work, some are in prison etc. However, I strongly suspect at least 60% of those people who dropped out of the labor force since April 2008 want a job and do not have a job.
Math at 60%
60% of 6,484,000 = 3,890,000
Civilian Labor Force: 153,421,000 + 3,890,000 = 157,311,000
Unemployed: 13,747,000 + 3,890,000 = 17,637,000
Unemployment Rate = 11.2%
If you want a range, assume 10.6% to 11.6%
Table A-15 Alternative Measures
Note that the Government reports "Alternative Measures" of unemployment every month in Table A-15.
If you take a look at line "U-5" above you will see the government adds back in "marginally attached" workers defined as those who want a job but did not look in the last 4 weeks.
U-5 is 10.4% which is in the ballpark of my 10.6% to 11.6% seat-of-the-pants calculation made above.
However, U-5 does not include those hiding out in school when they really want a job, and I rather doubt it includes "forced retirement" either. Thus, my number should be a bit higher than U-5, which it is.
What About Part-Time Workers?
The BLS says those who worked as little as 1 hour last week are considered employed.
According to the BLS, there are now 8,600,000 workers who want a full-time job but instead are working part-time. The BLS labels this group "part-time for economic reasons".
The number of rose by 167,000 last month.
Before companies hire full-time workers, many of those working part-time will see their hours rise first.
If you factor in those working part-time for economic reasons the unemployment rate rises to 15.9%, and if you factor in students and those in forced retirement who really would rather be working, it is likely another 1-2 points higher still.
With the Dollar in Turmoil, Two Debates on Gold Captivate Manhattan
by David Pietrusza - New York Sun
A Billionaire Likens America's Fiat Money To Double-Ply Toilet Paper
The double-header may be an endangered species in baseball, but a double-header of a different sort last night swept Manhattan, where nearly 1,000 people swarmed into an auditorium on the Upper West Side to hear luminaries debate the question of the gold standard and across town a packed auditorium heard a billionaire investor liken fiat paper currencies, including America’s, to toilet paper.
For the gold standard in the packed debate were one of the city’s most celebrated journalists, James Grant of Grant’s Interest Rate Observer, and a former director of the Office of Management and Budget under President Reagan, David Stockman. Against were a member of GMO’s asset allocation team, Edward Chancellor, and Richard Sylla, a professor of economics at New York University.
Said Mr. Stockman, "The gold standard wouldn't have allowed forty years of deficits . . . Nations were compelled to live within their means. . . . The gold standard was an honest regulator of Wall Street greed . . . nor did we [in upholding a gold standard] punish people who invested in savings accounts."
Edward Chancellor, while admitting that he was "not an enemy of gold," pointed to the series of panics in the century preceding World War I as evidence against the gold standard. "The type of sub-prime lending we've seen was possible under the gold standard," said he. He also pointed to the deficiencies of the gold standard re-instituted following 1918, noting that by the end the 1920s America and France controlled 62% of the world’s gold reseerves. He contended that Britain’s abandoning the gold standard in 1931 facilitated its recovery from the Great Depression. In the end, Mr. Chancellor argued against having any sort of reserve currency at all ("Get rid of all the reserve currencies").
Mr. Grant likenedt those who oppose the gold standard because of its temporary readjustments to the man who said, "I detest music because I don't like Lady Gaga." He considered the 1920s gold standard to be not a true gold standard. He called the current monetary system a "collectivist top-down tyranny . . . The clever and the nimble play this system for what it is worth." Gold he referred to as "the people’s money" and the dollar as "America's credit card." Said Mr. Grant: "We need a debit card not a credit card."
Mr. Sylla, the economist, said that "the world would outgrow the ability to use gold as a currency" if it were to return to a gold standard and that a return to a gold standard would translate into $9,421 an-ounce gold based on world reserves and $3,500-an-ounce gold based just on existing currency supply. He proposed, though did not further define, a "constitutional form of fiat currency." David Stockman countered that based on a 25% gold reserve requirement, the price of an ounce of gold would be at $2,000, which he said the markets would likely reach "in seven weeks" anyway.
Across town at the 92nd Street Y, the discussion avoided a return to a gold standard, though one panelist, John Hathaway, manager of a series of private gold-oriented accounts and gold funds for the Tocqueville Funds, opposed any return to a gold standard ("I don't believe there is a chance in hell the gold standard would return. . . . I wouldn't advocate it").
Moderated by the Economist’s American business editor, Matthew Bishop, this panel, titled "Gold: The Running of the Bulls," also featured the host of CNBC’s Mad Money, James Cramer, and a billionaire natural resources investor, Thomas Kaplan, who is chairman of the Electrum Group of companies. "I’ve been recommending gold since I started Mad Money," Mr. Cramer declared. " . . . There will be moments of fluff but I'm not really trading it . . . I regard it as the currency of your portfolio . . . I feel very strongly we are not in a topping phase." "I’d rather have the insurance policy of gold rather than the insurance policy of GEICO," Mr. Cramer later said.
Mr. Kaplan likened America’s fiscal policy since 1971 to the actions of Wile E. Coyote in the "Road Runner" cartoons, who runs over the cliff so fast it takes him a moment to realize there’s nothing beneath his feet. America's previously robust economy and the position of the dollar as the world's reserve currency has delayed, Mr. Kaplan suggested, but will not prevent its downward plunge. "We’ve passed the tipping point," he later warned.
The Euro, Mr. Kaplan said, is "a flawed currency." "All paper currency," said Mr. Kaplan, is "toilet paper currency"; the dollar is, on occasion, "double-ply."
Said Mr. Hathaway, "When someone says to me, ‘I’m trying to make money [in investing in gold], I say, ‘You're trying to protect your money.’. . . Gold is the best defense . . . That’s the reason to be in metals."
Regarding the recent plunge in the price of silver, Mr. Kaplan reminded listeners that unlike gold "silver has a split personality" — as the most widely-used monetary metal through history (both the Hebrew and French words for money, he noted, are based upon their words for silver), and as an industrial commodity, its most recent significant use being in the manufacture of solar panels at China.
"When gold is in a bull market," said Mr. Kaplan, "silver is on steroids; it goes nuts." Yet because of its industrial uses, silver can be a harbinger or victim of a downturn in the economy, with price drops not concurrently suffered by gold. "If we have a recession," said Mr. Kaplan, "the industrial component of silver works against it." "We are going back to the re-monetarization of gold by investers who no longer trust the central banks . . . .," concluded Mr. Hathaway, "The one thing I do know is it is not a bubble . . . . It is not over valued."
Policymakers learn a new and alarming catchphrase
by Gillian Tett - Financial Times
Another week, another wave of dismal fiscal gridlock in Washington. But as US politicians squabble about how to cut the debt , another concept with a catchy name is quietly starting to creep into the policy debate: “financial repression”.
A few weeks ago, Carmen Reinhart, a US economist who shot to fame two years ago by co-authoring an influential book on sovereign debt, This Time Is Different, produced a joint paper for the International Monetary Fund on the topic of “financial repression” in the west. And while this phrase is not yet mainstream news, it is starting to generate a buzz among the policy elite in Washington and in some European capitals.
The issue at stake revolves around the question of where investors “choose” to put their money. During the past three decades, western savers have generally assumed they could put their money wherever they wanted, since financial markets were organised according to the mantra of globalisation and free market capitalism – and thus the price of money (or interest rates) was set largely by demand. But as Ms Reinhart and Belen Sbrancia, her colleague, point out, this freedom was unusual. In the 1920s, global capital markets were also pretty free. But, from the 1940s to the 1980s, western governments operated capital controls and interest rate caps that restricted financial flows, limiting investor choice.
It is often assumed that these controls were driven by a wave of financial reforms after the 1929 stock market crash (just as governments are implementing financial reforms now). And that is partly true. However, Ms Reinhart and Ms Sbrancia argue that these controls also had a crucial fiscal impact. After the second world war, the debt of the advanced economies spiralled to about 90 per cent of gross domestic product, roughly comparable to today, which meant?western?governments desperately needed to find investors to buy the bonds.
One consequence of the controls was they created a captive domestic audience for those bonds. Better still, because these bonds paid a yield lower than inflation, whenever those captive investors bought bonds, they effectively paid a hidden subsidy to the government, enabling them to reduce the debt. Ms Reinhart and Ms Sbrancia argue the world has forgotten that the widespread system of financial repression “played an instrumental role in reducing or ‘liquidating’ the massive stocks of debt accumulated during World War II”. Between 1945 and the 1980s, they say the US and UK’s “annual liquidation of debt via negative real interest rates” on average amounted to 3-4 per cent of GDP per year, or 30-40 per cent of GDP debt reduction over a decade.
These days nobody is talking about introducing overt capital controls or interest rate caps in the west. And central banks appear determined to curb inflation. But some influential investors fear eventually the temptation to let inflation jump above bond yields will reappear. “While the ancient Romans used to shave metal coins in an attempt to monetise debts, our evolving financial system has used more sophisticated techniques [to cut its debt],” says Bill Gross, head of Pimco investment fund. “Bond prices don’t necessarily have to go down for investors to get skunked.”
Central banks such as the Federal Reserve have already been buying bonds. And there are now some intriguing hints that private sector institutions are being urged to hold more bonds. In the UK, the introduction of financial reforms has forced banks to purchase more gilts. Similar steps are afoot in other parts of Europe and in Washington some policymakers are quietly mulling whether US banks and pension funds could – or should – follow suit, especially if foreign buyers (who own half the US debt)?stop?buying?US?bonds.
Such moves horrify some free-market economists, who argue “repression” crimps private sector investments, thus undermining growth. But postwar politicians clearly decided this was a price worth paying to cut debt and avoid outright default or draconian spending cuts. And the longer the gridlock over fiscal reform rumbles on, the greater the chance that “repression” comes to be seen as the least of all evils; at least compared with others that may emerge from spiralling western debt.
Samoa goes back to the future as it slips across dateline to boost economy
by Bonnie Malkin - Telegraph
For more than a century it has enjoyed the reputation as the last place on earth to see the sunset. But on Dec 29, Samoa will become a nation of time-travellers by erasing a day from the country's calendar and catapulting itself 24 hours into the future, making it one of the first countries in the world to see the sun rise.
In essence it is simply slipping from the eastern side of the international date line to the western side. The change will put the Pacific island nation on the same weekday as its neighbours to the west, including Australia and New Zealand, and it is aimed at making trade with the countries easier and boosting the economy.
The move comes 119 years after the island last shifted time zones, moving from west to east in 1892 in order to align with American traders in California. Now, with almost as many Samoans living in Australia and New Zealand as the 180,000 who remain on the islands, the prime minister, Tuilaepa Sailele Malielegaoi, has decided that it is time to switch back. In 1892, Samoans celebrated July 4 twice. This time they will lose a day, going from Dec 29 straight to Dec 31.
Acknowledging that the nation's new regional alliances were behind the move, Mr Tuilaepa announced that the country would adopt a time zone closer to that of its western Pacific neighbours. "In doing business with New Zealand and Australia we're losing out on two working days a week," Mr Tuilaepa said. "While it's Friday here, it's Saturday in New Zealand and when we're at church on Sunday, they're already conducting business in Sydney and Brisbane."
The change will shift Samoa from being 21 hours behind Sydney to just three hours ahead – the same as Tonga. But as well as placing a rather large kink in the Pacific's jagged international date line, the move has worried tourism operators who have long sold holidays to the islands on the grounds that they are the last place to see the sunset each day. The change will make neighbouring American Samoa, a US territory which is remaining on Samoa Standard Time, the last place to see the sunset.
Andrew Tiatia, a local tour guide, said a unique selling point would be lost with the date change. "The fact that Samoa is the last place on Earth to see the sun of every day, is a great marketing point, and one which I take great pride in telling our visitors. Once that's gone, we're just like the rest of the world," he said.
But the prime minister has his own plans for the tourism industry. Visitors to the Samoan islands will now be able to celebrate the same day twice, by hopping between Samoa and American Samoa, which are an hour's flight apart. "You can have two birthdays, two weddings and two wedding anniversaries on the same date on separate days without leaving the Samoan chain," he said.
Mr Tuilaepa is known for his ambitious schemes. In 2009, he enacted a law that switched cars to driving on the left side of the road, also bringing Samoa in line with Australia and New Zealand. He said at the time that the change made it easier for Samoans in Australia and New Zealand to send used cars home to their relatives.