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By Sebastian Mallaby
Published: March 21 2011 23:10 | Last updated: March 21 2011 23:10
Japan's tragedy is a testament to the power of nature and the frailty of man. But one human creation will emerge from this mess looking stronger than before: Japan's central bank. In the days since the earthquake, the Bank of Japan has printed trillions of new yen. If you doubt this activism was warranted, consider what followed earthquakes in the era before central banks.
The April 1906 earthquake in San Francisco is a case in point. The damage amounted to about 1.5 per cent of US gross domestic product; to meet the flood of claims, insurers shipped gold from New York to San Francisco and Wall Street was emptied of liquidity. By March 1907, American stocks had declined by about a fifth from their peak, even though the stimulus of reconstruction might have been expected to support them.
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