Back in 1988, when Michael Lewis was fresh off of Wall Street and just starting on the career as a journalist that would eventually lead him to Moneyball and The Blind Side and The Big Short, he came up with an idea for a story about Japan: What would be the financial fallout if a devastating earthquake hit Tokyo? He's now revisited that article, and the differences and similarities are very telling.
Lewis found that the Japanese were already studying such a scenario, and one of the things they forecast was "a dramatic rise of five percentage points in interest rates, a collapse in economic growth and in asset prices -- all in the U.S." Of course, Japan's economic strength was much greater in 1988 than it is now. How bad off are the Japanese? The nation's ratio of government debt to GDP is the worst in the world. It's twice as much as that of Greece, the reigning basket case among world economies.
So even though the March 11 earthquake struck only a glancing blow to Tokyo, the end result may be as bad as Lewis' 1988 nightmare scenario. As fragile and unstable as the financial world looked back in 1988," Lewis writes now, "to those who tried to imagine the worst, it looks even less stable and more fragile today."
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