I have no way of evaluating this speculation. But it sounds possible enough to worry me.
UPDATE: More optmistic thoughts:
"Natural disasters in large advanced economies tend not to significantly reduce current aggregate output or induce an associated rise in the general price level. In geographically dispersed economies, disasters are almost always localized events. But in any economy, it is the capital stock, not output, that is directly reduced by the disaster," [the late George Horwich of Purdue University] wrote in a paper published in 2000.
Horwich concluded that physical capital is the most visible contributor to economic recovery but human capital is the dominant economic resource. And Japan has that in spades.
"Destroy any amount of physical capital, but leave behind a critical number of knowledgeable human beings whose brains still house the culture and technology of a dynamic economy, and the physical capital will tend to reemerge almost spontaneously," he said.
I still remain impressed with graphics of German and Japanese economic growth before and after World War II showing that while the war devastated both economies, within 20 years of accelerated growth above normal patterns, they reached what the prewar slope would have predicted. This was called "the Phoenix factor."
We shall see if the human capital of Japan--which despite 10,000 dead so far estimated (I didn't think it could get that bad in well-prepared Japan)--remains a major positive and is more important to recovery than the debt level that drags at Japan's economy.
I tend to the optimistic side and think Japan will rise from these ashes. But I will worry that past trends don't guarantee future trends. And the article does lay out problems, too. Very worthwhile to read it all.
