Has the U.S. government sold out American manufacturing in its new deal with Japan? Or are we just so intertwined these days that what's good for the Japanese in the short term is great for us in the long term?
On Wednesday, the
Wall Street Journal
reported that the U.S. now favors a radical reflation in Japan. We are now on record urging this once-proud nation to turn on the printing presses and get money -- even money that is debased -- into people's hands. We believe that only through such radical measures will Japanese people feel compelled to spend their massive savings. If you had to outline it bluntly, the thinking goes like this: Right now, everything the Japanese buy with their hard currency goes down in value -- stocks, real estate, consumer goods -- so it is not worth spending.
But if you print tons of money, it would put a premium on spending that money and not saving. It would make other assets more attractive than cash. (Remember, you are paid virtually nothing to hold cash in Japan and yet people still hoard it.)
There is no telling what the Japanese will do at home with their newly debased yen if they go this way. But it is pretty textbook what should happen: The stock market should rally and the yen should plummet in value.
Goods that are made here and exported will be tougher to sell there; goods that are made there and exported here will be easier to buy.
In short, our government is now arguing for a policy that should hurt American industrial interests, particularly the auto companies and the makers of hard goods that go into cars.
But before you blame our government, maybe it's time we began asking how much this Japanese depression is hurting everybody, including our own country. When the world's second-largest economy keeps going downhill, it is impossible to save the South Koreas, the Brazils and the Indonesias. If we don't get some growth in this world, these embattled countries will not come back.
More important, the U.S. industrial interests now have much riding on Japan.
have multibillion-dollar interests in Japanese auto makers.
have made giant bets on real estate and securities sales in Japan.
has sought to expand its mutual-fund sales.
might soon be the most important force in finance in that country. Every major tech company has spent millions upon millions of dollars in Japan, and that investment is now hobbling them because no one is buying anything over there.
The world, including major U.S. industrial companies, has too much at stake to worry about the short-term implications of this weak-yen policy on the U.S. steel industry. That's why this change will be watched closely. It is why some big money managers are making Japanese equity bets right now. (I have tried that too much and am now going to wait to see if it works before I commit another dime over there.)
This decision is the one to watch if we are ever going to get out of the conundrum of deflation/no growth in Japan and inflation/recession in Latin America. Too early to bet yet, but this weak yen will be the big story for the rest of the year.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At the time of publication, his fund was long General Electric, though positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column by sending a letter to TheStreet.com.