Revisiting what Warren Buffett has to say about the U.S. dollar and economy
moneyrelations :: Oct.26.2007
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The year is coming to an end and soon, financial papers will be out in full force making 2008 predictions. How high will the loonie go? Where is the U.S. economy headed? Instead of looking ahead, I’m going to do some revisionist history and check up on what Warren Buffett himself had to say about the future of the United States. Here is an article Warren Buffett wrote in Fortune magazine dated October 26, 2003, exactly four years ago today, entitled Why I’m not buying the U.S. dollar. It also has a catchy subtitle: America’s growing trade deficit is selling the nation out from under us. Here’s a way to fix the problem – and we need to do it now.
Needless to say, the title is not very encouraging.
My mom told me twenty years ago that the Chinese are going to grow into a superpower just from the sheer force of their population. As a kid, I thought – um, I didn’t think much as a kid, probably whatever. But the time has come for the Chinese on the economic stage. The truth is, it didn’t take a financial genius to predict it.
We can all see the debt trouble the U.S. is in, the credit issues and the foreign ownership. Always the land of dreams and opportunity, Americans take risks on loans for bad credit to achieve entrepreneurial success. Therefore, Buffett has a pretty predictable take on the subject and he admits himself that he’s not a macroeconomics kind of guy and he’s cried wolf before. But has much of the situation changed from 4 years ago?
As described by the Toronto Star on his recent trip in Toronto:
In many of the 10 or so questions he took during the Q&A session, Buffettt dwelled on the weakness of the U.S. dollar and a U.S. trade deficit that shows no signs of easing.
Buffettt said it was “very unsettling” that Brazil now is helping prop up the U.S. dollar with its purchases of U.S. government securities. “Brazil is a country whose own currency has gone to nil five times in the past century,” he noted.
Will this also turn into an issue of “it was predicted” twenty years from now?
Warren Buffett ::
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This makes me want to go back to University and get an MA in economics.
What I’m wondering is … if the US continues to tank, what happens to us in Canada? It’s all well and good for us to feel a bit smug (and I do) but, are we ultimately headed to having China as our major trading partner? That shakes me up a lot.
Well, like I always say, the Americans are tough and resilient and Buffett himself said he got it wrong before. But what if China does become our biggest trading partner? Will life be any different? It’s all about supply and demand and they have the goods. Are we afraid of a lack in production quality? Before we go blaming China for Mattel or Menu Foods, what exactly does it say about our inspection systems or quality controls to allow these goods in? All these companies are outsourcing and I’m sure not for our benefit as I don’t see prices going down but for their own profit margins.
Coincidentally enough, there is man running for president of the United States by the name of Ron Paul whose platform is largely based on the decline of the American dollar. I would encourage the concerned person to educate themselves on the issues at hand. Peace.
Hey Eileen,
Thanks for taking the time to comment. What can I say but I agree?
A large part of this blog is just about learning and macroeconomics depend on knowing what’s going on in the world. Being neighboring countries, I’m also keeping an eye on American politics. I have to admit though, the Clinton/Obama battle is enthralling!