Warren Buffet

Buffett to Congress: Rein It In!

On Wednesday, the Oracle of Omaha Warren Buffet penned an op-ed piece in the New York Times addressing his significant concern for the unprecedented level of debt the United States has accumulated.

Normally a calm investor with a glass half full approach, Buffet was quick to come out and support the “do what must be done” approach to last fall’s financial meltdown. While he praised the Bush and Obama administrations, as well as the Fed for their swift aversion of a threatening depression, Buffet claims that the new government debt piling up is quite worrisome.

Buffet says that for every action there is a consequence, and the massive government spending going is spewing "greenback emissions." Some of the most worrisome statistics thus far when analyzing U.S. Government debt are as follows:

1. Congress is spending roughly 185% of what it actually earns.

2. U.S. Government debt is increasing by nearly 1% per month

3. U.S. Government deficit is up to 13% of GDP, a post WWII record.

4. The U.S. is borrowing $1.8 trillion per year.

Normally, increasing federal debt can be financed in a few different ways, such as borrowing from other countries, borrowing from the taxpayers, or through printing money.

Buffet says the reason he is so concerned for the U.S. economy is that none of these conventional options seems plausible given the sheer size of the debt that has been incurred.

The U.S. cannot rely solely on foreign investors given that foreign investors have alternatives, such as stocks, real estate, or companies, which currently seem more attractive than dollar-denominated bonds.

Taxpayers covering the bill would not be feasible either. If Americans somehow managed to save $500 billion (which is a far greater amount than recent figures show) and put their entire savings solely into U.S. Treasuries, the government would still need someone to cover $900 billion of the total $1.8 trillion!

This leaves printing money, an option that is particularly unattractive given the devaluing effects it would have on the dollar.

Despite what the situation may seem, Buffet was optimistic about how the U.S.’s debt to GDP ratio, claiming that our country could handle a “lot more debt than we think. Buffet calmly ended his article with a word of advice to Congress, writing, “Once recovery is gained… Congress must end the rise in the debt-to-G.D.P. ratio and keep our growth in obligations in line with our growth in resources".

But it was a wise man who said, “All I want to know is where I’m going to die so I’ll never go there.” We don’t want our country to evolve into the banana-republic economy described by Keynes.

http://www.nytimes.com/2009/08/19/opinion/19buffett.html?pagewanted=1&_r=1&sq=buffet&st=cse&scp=1

Kliphnote:

And to think Buffet is a Liberal.

Just keep spending money.

Act like it's not your money.

And you don't have to pay it back.

Increase taxes and print more money.

That's what many want to do.

As long as they get what they want.

They want "Obamacare" no matter what it cost.

They want "Cap & Trade" no matter what it cost.