What Is the Potential Economic Impact of the Disaster in Japan?

This is a rush transcript from "On the Record," March 14, 2011. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: First the buildings crumble upon people inside then roads broke in two and the tsunami came in and swept towns clean of life. There is more, the economic crisis. Japan the third largest economy in the world and our second biggest lender after China.

Japan is home to some of the world's biggest automakers provides car parts to our auto makers in Detroit. Many of Japan's leading companies such as Sony and Toyota are closing some facilities. How many of an impact could this have on the United States? "Washington Post" economics writer Neil Irwin joins us.

It almost sounds selfish for us to be worried about our economic impact tonight in light of what they are facing, but what is the short term, long term impact on us?

NEIL IRWIN, ECONOMICS WRITER "WASHINGTON POST": It's very serious. We have a global economic recovery just been trying to find its sea legs. Japan is the third largest economy in the world, just starting to show improvement. That improvement is now undermined and in question. We are seeing supply disruptions. Auto makers in Japan are shutting down, computer chip, LCD screens, computer chips will not be made. Can this recovery continue without Japan being part of it is the question.

VAN SUSTEREN: What do most people think?

IRWIN: We've seen the stock market drop a lot, 13 percent in three days. There's not great confidence that the Japanese economy can bounce back from this even as they begin to reconstruction.

VAN SUSTEREN: As you look at these pictures it looks so far away and so horrible what happened. And you forget often how interrelated all these markets are. Even something like a car part or TV screen, tragedies that happen someplace else has an effect around the world.

IRWIN: That's right. Even we you buy a car that is built in the United States, it has lots of parts that came from Japan and other Asian nations. You have the same with any kind of electronics, iPad, something like that. There's a lot of parts that come from all over the world. We might see disruptions as time passes.

VAN SUSTEREN: I'll be curious to find out what happens with our debt. They are second largest holder of our debt behind China, then the U.K. is a distant third. I wonder if holding our debt will have any impact, whether they will pick up more debt if we raise our debt ceiling.

IRWIN: There's a possibility they dip into their existing holdings of treasury bonds sell some off to pay for this reconstruction effort. Japan makes our debt look manageable. They have about 200 percent of their economy is the size of their debt, enormous relative to the size of that country.

They might look into other ways to pay for their reconstruction. One way for them to sell some of their holdings or Treasury Bonds, and that would have negative consequences for the United States. It would raise our borrowing rates and harder for us to finance our debt.

VAN SUSTEREN: What are the odds they do that?

IRWIN: It is a real possibility, solid odds they consider that approach.

VAN SUSTEREN: So very important industries, cars, electronics, if they don't come out of it, and the 90s were so lousy to them, it is important for us they come out of their economic crisis.

IRWIN: That's right. It is a global economy. They've been a strong ally. They've had a 20-year economic stagnation. They just seem to be getting their sea legs and coming out of it. This is not good for their economy on any kind of horizon.

VAN SUSTEREN: Neil, thank you.

IRWIN: Thanks, Greta.