Always the Contrarian: Should We Help Japan?

(First published by Rockenomics March 31, 2011 at PinnacleDigest.com)

This is a serious question. The world has seen the horrifying natural and man made disasters that have taken place in Japan and the cost to rebuild is probably somewhat higher than the $300 billion that has been estimated. Everywhere you turn, more and more companies, agencies and others are hanging out a shingle asking for Japanese relief funds, but I contend they do not need your money and they do not need mine as they are already prepared financially to deal with this. This is not an assumption, so please don't think I'm being heartless.

 Japan, up until this catastrophe, had the world’s third largest economy behind the European Union and the United States and had been building a ‘rainy day fund’ of approximately $900 billion American dollars (USD). Is this not a rainy day for Japan? Is this not the worst set of circumstances to ever hit that country?

The rainy day fund is their own insurance program and they aren’t using it. Why not?

The answer lies on our side of the Pacific and has its roots in entitlement programs and government spending in America. With the USD being the world’s reserve currency - the currency of business - it forces other countries to hold its currency in order to conduct business. Since Japan as well as many other countries have built up huge reserves of USD, it is in their best interest to help those dollars maintain their value relative to other currencies. However, the American government has been taking advantage of the reserve status for many years and has been counting on these other countries to continue to support the USD.

The short answer: The enormous debt load in the US is growing rapidly and is putting the reserve status in jeopardy. If the dollar loses its reserve status, the value of the USD will drop precipitously and Japan with its $900 billion in reserves will lose a significant portion of the value. By supporting Japanese relief efforts, you are inadvertently supporting all of those people on entitlement programs in the United States and delaying the reality check that the American government will face when the USD does lose its reserve status.

What should Japan do? With $900 billion, the Japanese should be funding a new sovereign wealth fund that will purchase basic commodities and large industrial companies. Then using their keiretsu methodology (vertical and horizontal integration of businesses) they can sole source contracts to rebuild their devastated country and have the profit margin in the countracts come back to them. This will require them to SPEND a lot of the rainy day fund and stop buying USD treasuries, which will cause the remaining USDs in that fund to lose value. Not doing this will cause the Yen to continue to erode and it will cost the Japanese much more money to rebuild their country, effectively increasing the burden to the Japanese taxpayer. Their choice boils down to either supporting the Japanese people by spending the dollars they have, or supporting the American people by buying more USD . Which one makes sense to you?

It is completely foolhardy for any person, organization or government to give money to a wealthy person who has had a financial set back. Why then would you give to Japan who are net creditors in the global marketplace. If you feel a need to help out, continue giving to Haiti or other impoverished nations (through organizations like the Red Cross and Rotary International) where the government does not have a bank roll to fix the problem.