by Calculated Risk on 3/14/2011 10:31:00 PM

WSJ reports: Japan's Prime Minister said there is a high risk of elevated levels of radiation from a reactor at the Fukushima nuclear power plant that exploded earlier, and urged people within 30 kilometers to stay indoors

CNBC: Japan Reactor Operator: TEPCO Unable to Cool Reactor and Fuel Pool of Daiichi No. 4 Reactor

From the NY Times: Crucial Containment Structure Damaged

by Calculated Risk on 3/14/2011 07:28:00 PM

By request ...

From the NY Times: Japanese Officials Say Another Explosion Was Heard at Nuclear Plant

From the WSJ (before explosion at #2): Japan Nuclear Plant Troubles Deepen

Japanese officials said late Monday there is a high possibility that all three of the stricken reactors at the Fukushima Daiichi nuclear complex in northeastern Japan are now experiencing some degree of melting of their reactor cores that contain fuels—a condition that, if it worsens, could lead to dangerous radiation leaks. This suggests that despite various attempts to cool the reactors since Friday's massive earthquake and tsunami, the temperatures inside them remained precariously high.

NHK English

by Calculated Risk on 3/14/2011 05:00:00 PM

From Landon Thomas at the NY Times: E.U.'s Latest Rescue Package Seen Falling Short-Again

Europe’s leaders cobbled together a new structure over the weekend that will allow its rescue fund, the European Financial Stability Facility, to disburse its entire €440 billion, or $615 billion, allotment if needed, and to buy bonds at government auctions. They also eased the conditions on Greece’s rescue loans by reducing interest rates and extending repayment terms.

But the EFSF can only buy bonds for countries that have taken bailout funds (Greece and Ireland). This leave Portugal out ... unless they ask for a bailout.

And this is just buying time. Landon concludes:

In 2013, for example, Greece’s debt will have increased to almost 160 percent of G.D.P. ... by 2014 it must begin paying interest equivalent to about 8 percent of its G.D.P. — a huge amount by any measure.

For now, Greece has time. But with growth expected to shrink again this year, by 3.4 percent, and with unemployment now at about 15 percent, how long the Greek government, or any government for that matter, can continue to expect so much public sacrifice to pay off its bankers remains to be seen.

Just buying time for now.

by Calculated Risk on 3/14/2011 11:53:00 AM

Sometimes it helps to make a list of issues and hopefully start to check them off. Unfortunately the list has been getting longer, and some of the downside risks will be with us for some time.

Here is a list - with a few short comments:

• Risks from the earthquake in Japan.

• Higher oil prices and a possible supply shock.

Although U.S. oil prices have fallen under $100 per barrel this morning, prices are still high and a risk to the economy. As Professor Hamilton noted over the weekend, the recent sharp decline in consumer sentiment is probably tied to the high price of gasoline.

In addition to the events in Libya, Saudi Troops Enter Bahrain to Help Put Down Unrest

• U.S. Housing Crisis.

House prices are at new post-bubble lows and still falling.

And there is probably more distressed supply coming with 11.1 million U.S. residential properties with negative equity and about 4.3 million mortgage loans are delinquent or in the foreclosure process.

Although foreclosure activity has slowed - because of foreclosure processing issues - distressed sales are expected to increase again later this year.

• The European financial crisis.

Although an agreement was reached late Friday night on the loans to Greece - to extend the term and lower the interest rate - and also to allow the EFSF to intervene in the primary bond market, this just buys more time.

The Greek ten year yield is down to 12.3%. The Irish ten year yield is at 9.4% - even with no interest rate cut for Ireland.

There was some speculation last week that Portugal would request a bailout over the weekend. That didn't happen. Here are the Portuguese 2 year, 5 year and 10 year bond yields from Bloomberg. All are lower today after rising sharply last week.

Here are the Ten Year yields for Spain, and Belgium. Both lower too.

• State and local government cutbacks.

• Possible Federal government cutbacks (even shutdown).

Although the "debt ceiling" debate is just political grandstanding, you never know what will happen (I doubt the U.S. will default). It sounds like another short term budget deal will be reached, and it is but it is possible that more cuts will be enacted this year - slowing growth in 2011.

• Inflation (a two sided coin).

Although I think core inflation will remain below the Fed's target all year, it is possible that inflation could pick up more - or that policymakers will overreact. I think it is likely the Fed will remove the "the measures of underlying inflation have been trending downward" sentence in the FOMC statement tomorrow (see FOMC Preview), but I think we are still a long ways from tighter policy.

by Calculated Risk on 3/14/2011 08:45:00 AM

From the NY Times: Second Explosion at Reactor as Technicians Try to Contain Damage

From the NY Times: Radioactive Releases in Japan Could Last Months, Experts Say

From the WSJ: Supplies Run Short for Quake Survivors

From the NY Times: In Tsunami’s Wake, Much Searching but Few Are Rescued

Libya: From McClatchy: Gadhafi's forces roll east, build pressure on U.S. to step in

Weekend on U.S. economy:
• Summary for Week ending March 11th
• Schedule for Week of March 13th
• Preview of Tuesday FOMC Meeting