Skip to comments.BERKSHIRE HATHAWAY INC.2004 ANNUAL REPORT [PDF format]
Posted on 03/06/2005 5:32:21 PM PST by A. Pole
[...]A budget deficit in no way reduces the portion of the national pie that goes to Americans. As long as other countries and their citizens have no net ownership of the U.S., 100% of our countrys output belongs to our citizens under any budget scenario, even one involving a huge deficit.
As a rich "family" awash in goods, Americans will argue through their legislators as to how government should redistribute the national output that is who pays taxes and who receives governmental benefits. If "entitlement" promises from an earlier day have to be reexamined, "family members" will angrily debate among themselves as to who feels the pain. Maybe taxes will go up; maybe promises will be modified; maybe more internal debt will be issued. But when the fight is finished, all of the familys huge pie remains available for its members, however it is divided. No slice must be sent abroad.
Large and persisting current account deficits produce an entirely different result. As time passes, and as claims against us grow, we own less and less of what we produce. In effect, the rest of the world enjoys an ever-growing royalty on American output. Here, we are like a family that consistently overspends its income. As time passes, the family finds that it is working more and more for the "finance company" and less for itself.
Should we continue to run current account deficits comparable to those now prevailing, the net ownership of the U.S. by other countries and their citizens a decade from now will amount to roughly $11 trillion. And, if foreign investors were to earn only 5% on that net holding, we would need to send a net of $.55 trillion of goods and services abroad every year merely to service the U.S. investments then held by foreigners. At that date, a decade out, our GDP would probably total about $18 trillion (assuming low inflation, which is far from a sure thing). Therefore, our U.S. family would then be delivering 3% of its annual output to the rest of the world simply as tribute for the overindulgences of the past. In this case, unlike that involving budget deficits, the sons would truly pay for the sins of their fathers.
This annual royalty paid the world which would not disappear unless the U.S. massively underconsumed and began to run consistent and large trade surpluses would undoubtedly produce significant political unrest in the U.S. Americans would still be living very well, indeed better than now because of the growth in our economy. But they would chafe at the idea of perpetually paying tribute to their creditors and owners abroad. A country that is now aspiring to an "Ownership Society" will not find happiness in and Ill use hyperbole here for emphasis a "Sharecroppers Society." But thats precisely where our trade policies, supported by Republicans and Democrats alike, are taking us.[...]
Free trade bump.
Now I'm convinced GW Bush is on the right path!
"[...]A budget deficit in no way reduces the portion of the national pie that goes to Americans. As long as other countries and their citizens have no net ownership of the U.S., 100% of our countrys output belongs to our citizens under any budget scenario, even one involving a huge deficit."
Exactly. And Buffet's late wife just left a fortune to Planned Parenthood, IIRC.
Buffet himself is much more a Socialist/Marxist than I think has been documented. Soros also plays the role of a capitalist....
You are exactly right. I think there is a special place in hell for Buffet and Soros. These two pathetic individuals made a fortune in captitalism and now they preach it's evils. That is only because in the capitalist system, their forturnes could be taken from them. Now that these two losers are on easy street, they need to ensure the system is changed so that they can keep their wealth from the hungry sharks swimming out there to take it at either of these two clowns first mistake.
In the article I wrote for Fortune 16 months ago, I warned that a gently declining dollar would not provide the answer. And so far it hasnt. Yet policymakers continue to hope for a soft landing, meanwhile counseling other countries to stimulate (read inflate) their economies and Americans to save more. In my view these admonitions miss the mark: There are deep-rooted structural problems that will cause America to continue to run a huge current-account deficit unless trade policies either change materially or the dollar declines by a degree that could prove unsettling to financial markets.
Proponents of the trade status quo are fond of quoting Adam Smith: What is prudence in the conduct of every family can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.
I agree. Note, however, that Mr. Smiths statement refers to trade of product for product, not of wealth for product as our country is doing to the tune of $.6 trillion annually. Moreover, I am sure that he would never have suggested that prudence consisted of his family selling off part of its farm every day in order to finance its overconsumption. Yet that is just what the great kingdom called the United States is doing.
If the U.S. was running a $.6 trillion current-account surplus, commentators worldwide would violently condemn our policy, viewing it as an extreme form of mercantilism a long-discredited economic strategy under which countries fostered exports, discouraged imports, and piled up treasure. I would condemn such a policy as well. But, in effect if not in intent, the rest of the world is practicing mercantilism in respect to the U.S., an act made possible by our vast store of assets and our pristine credit history. Indeed, the world would never let any other country use a credit card denominated in its own currency to the insatiable extent we are employing ours. Presently, most foreign investors are sanguine: they may view us as spending junkies, but they know we are rich junkies as well.
Our spendthrift behavior wont, however, be tolerated indefinitely. And though its impossible to forecast just when and how the trade problem will be resolved, its improbable that the resolution will foster an increase in the value of our currency relative to that of our trading partners. We hope the U.S. adopts policies that will quickly and substantially reduce the current-account deficit. True, a prompt solution would likely cause Berkshire to record losses on its foreign-exchange contracts. But Berkshires resources remain heavily concentrated in dollar-based assets, and both a strong dollar and a low-inflation environment are very much in our interest.
We ignore this at our peril imho.
p.s. The italicized part of post 7 was also from Berkshire Hathaway report.
Maybe yes, maybe no. But it does not have much to do with the veracity of what they say.
"These two pathetic individuals made a fortune in captitalism and now they preach it's evils..."
Yes--AND--Bill Gates and Buffet are famous best friends. And Gates' software and patents have been under long, heavy attack, formerly here by the Marxist Clinton Justice Department for antitrust--and now more in the EU by Apple and RealNetwork...both firms with major investment in Open Source/infocommunism/cybercommunism and contributors to Democratic/Progressive/Marxist goals.
And not to be forgotten--Gates' licensing of Windows (at least part of it to none other than--China. Export restrictions, anyone? Military grade encryption, back-door concerns, eavesdropping.... (don't forget the U.S. Embassy that Russia built for us in Moscow a few decades ago)...
And...IBM's just sold its Personal Computer division to a ChiCom firm. Many components of U.S.-sold computers are made in Communist China including many whole brands and lines of computers.
The Hydra hath many heads. Four Horsemen, please sharpen your swords well.
"The Hydra hath many heads. Four Horsemen, please sharpen your swords well."
You have this right :) We are at a pivotal time in this country. We can either defend it's honor from abroad and within by upholding the principles that this country was founded upon, or we can go silently in the night remembering the greatness that she was and feeling shame for having done nothing to defend her.
And he has played it very well. So well in fact that it could be said he understands Capitalism better than most of us.
"And he has played it very well. So well in fact that it could be said he understands Capitalism better than most of us."
Exactly why he wants it's demise. Soros plays a zero sum game. His good fortune could easily be lost.
I think the party line dictates that deficit spending is now good, so put me in the "hate Buffet" group please.
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