Warren Buffett Fears Foreign Ownership …
In a rather remarkable article published by Wall Street Week and Fortune Magazine, “Why I’m Not Buying the U.S. Dollar“, Warren Buffett, the Sage of Omaha, claims that the trade deficit will lead to foreigners taking over the United States and that this is a very, very bad thing.
He sees the country’s “net worth” as being “transferred overseas” at an alarming rate and that this will lead to “major trouble”. He predicts that Americans will have to work “extra hours” to service the foreign debt. He sees the trade deficit as “a problem that will test all our abilities to find a solution”.
He foresees that eventually foreigners will “sell most of [the U.S. debt they hold] to Squanderville [i.e., American] residents for Squanderbucks [i.e., U.S. dollars] and use the proceeds to buy Squanderville [i.e., U.S.] land. And eventually the [foreigners will] own all of Squanderville [i.e., the United States].
What Mr. Buffett fails to understand is that the “trade deficit” is due to foreign exporters willingness to accept dollars and not to American’s propensity to “squander” their savings.
Is Mr. Buffett’s “Problem” Real?
Because foreign exporters are eager to accept dollars to settle their trades, these dollars accumulate in U.S. banks and, in turn, in various credit instruments. But, so what? Like many other fretters about the “trade deficit”, Mr. Buffett does not take into consideration that, unlike third world countries, America’s “debt” to “foreigners” is denominated in U.S. dollars which are printed by the U.S. Treasury.
Americans will never have to work “extra hours” to pay off foreign debt any more than residents of Kansas have to work overtime to pay off a state “trade deficit” with Arkansas.
Even if the foreign exporter elects to leave the proceeds from the sale of goods to Americans in a U.S.bank and if the Bank decides not to loan money to spendthift Americans, the bank will invest the funds in U.S. Treasury bills, driving down interest rates. (The Federal Reserve will always issue Treasury bills, even if the government is running a fiscal surplus, because open market operations are fundamental to their “control” of interest rates.)
The Treasury pays interest on its debt simply by crediting the creditor’s bank account with a U.S. bank. The U.S. bank, in turn, reinvests this deposit in new Treasury bills and therefore no one has to work “extra hours”, since debt repayable with your own vouchers really never needs to be repaid.
Mr. Buffett must be thinking we are still living in the age of the gold standard, when a nation’s money was backed by precious metal that it could not create out of thin air. Instead, we are living in the magnificent days of fiat money, Central Banks, and government-condoned inflation.
Should Foreigners Be Banned From Owning U.S. Real Estate?
Even if foreigners decide to use the dollars generated by the trade deficit to buy up (oh, horror of horrors!) U.S. land, this would only give the U.S. government the right to tax them on their property, rather than have the obligation to pay them interest.
If Mr. Buffett really thinks foreigners are going to rush to buy U.S. land, why doesn’t he start buying real estate instead of foreign currency? Just recall how Arab and Japanese billionaires were taken to the cleaners after buying up American “prime real estate” over the last generation.
Generally, just buying real estate to hold, without investing in improvements, results in tax revenues for the state, local, and federal government, cash flow for lucky Americans who sell the property, and a headache for the new owner.
Of course, to invest wisely in such properties, it would be necessary to make improvements, which, in turn, would create jobs for Americans. I, for one, would be happy to see Chinese businessmen buying up the decaying wharfs of New York City, transforming them into modern shopping malls with parks, fountains, and walkways.
Presumably, Mr. Buffett would prefer for, say, the Japanese to tear down Rockefeller Center and export the building, brick by brick, to rebuild in Tokyo, since this would help to reduce the “trade deficit” and keep America’s “net worth” from draining away.
Is Government Intervention Justified?
To resolve his “problem”, Mr. Buffett proposes a government-run scheme for rationing the right to trade with the U.S. through “Import Certificates,” which, of course, would be contrary to the World Trade Organization treaty that the U.S. adhered to under President Clinton.
In other words, Warren Buffett, perhaps the richest man in America, a prominent supporter of the Democratic Party and “limousine liberal” supreme, is proposing that Big Government intervene in the free market and ration rights to import and export goods and services to stop the country’s “net worth from being transferred overseas”.
Of course, under certain circumstances, the country might have a reasonable motive to intervene in foreign trade for the general good. For example, if, in the interests of national security and defense, it was deemed necessary to reindustrialize, regaining lost manufacturing capacity in order to remain “the arsenal of democracy”, this might be a justification for government intervention in foreign trade.
But Mr. Buffett’s xenophobic worries about the nation’s “net worth being transferred overseas” hardly seems to be a plausible justification for government intervention, however emotionally appealing to the uneducated proletariat.
What is Mr. Buffett Telling Us?
If the Sage of Omaha doesn’t really understand what the “trade deficit” signifies, and if Fortune Magazine and Wall Street Week share his lack of comprehension, this provides us with a useful look inside the minds of the wealthy liberal elite who might, just possibly, be running the United States after 2008, when, as almost half of the population fervently hopes, President Hillary Clinton will take the oath of office.
In his article, Mr. Buffett admits that his scheme for “Import Certificates” would inflict more than a little pain on both Americans and foreigners, but this is OK since it all would be for the “greater good”. For students of Capital Flow Analysis, Mr. Buffett’s article should be stashed away to read again in 2008, in the unhappy event that the Democratic Party regains control of government.
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Posted by Ethan on November 3rd, 2008 at 10:13 am.
There is no question that foreign investors are put off by the growing US trade deficit. However, the deficit, in my opinion, is not caused so much by foreign investors eager to invest in the US, but rather by foreign exporters eager to keep their factories running.
The Chinese investors may indeed have become increasingly disillusioned with the dollar over the period you mention. However, this has not kept Chinese exporters from selling ever more goods to the US in exchange for dollars.
In Q1 2009, when the US dollar was definitely in bad odor with foreign investors, and new investment in US financial assets fell over 90%, the trade deficit continued to grow. In other words, it was better to accept dollars and keep factories running at the highest level possible, than to refuse to accept dollars and fire workers.
Posted by John Schroy on June 28th, 2009 at 2:26 am.
The REAL problem is that International Globalization of Trade is a Council on Foreign Relations (CFR) Ponzi Scheme.
Here is how it works:
First you move all the highest paying jobs off shore to biggest labor market in the world.
Of Course in China that means you can get your products produced by the slave labor cost of $2/day.
Now you take all of these finished products and shipped then back to America, the largest and most expensive product market in the world. That way my International Company will make the largest profit possible on every item produced.
You get the products produced by the Slave labor and then you bring back too America and sell the product for best price.
But, then like all PONZI schemes there is this big problem of at some point in time you run out of people to sell your product too.
You say.. Why do you say that?
That is exactly where we are right now in this Ponzi scheme cycle. But, it seams I am the only person in the whole world completely understands it.
All the Industrial Countries of the world elected to join the NAFTA or the WTO and they thought this was the most efficient way to produce products.
Now we the people of all of the Industrial Countries are all going to be forced into bankruptcy and lose everything we have worked for all of our lives. That includes our Job, our home if mortgaged, our Pensions and everything else.
This is going to be exactly like the Big Depression of the 1930s, except this Depression will be much, much worse.
Because during the 1930s there was no credit cards and credit was few and far between. Now, it seems everything we own has been purchased on credit of some type. So, I guess now we will loss everything we own this time.
To go back to what I have dubbed: “International Trade PONZIE SCHEME”.
I want ask you just One Question.
If all of the Industrial countries of the world moved all of the best paying jobs off shore to a SLAVE LABOR MARKET paying $2/day like they have done for the last 20 years.
All of the Workers in the Industrial countries of the world will now be laid-off with no income and can not pay their bills.
All of the workers in China the SLAVE LABOR CAPITAL of the world will be working for $2/day.
HERE IS MY QUESTION:
Please tell me: “who in the HELL will have enough money or Income to Purchase all of these SLAVE LABOR products”?
Of Course the answer is “no one will have any money”.
That is exactly where we are right now..
The sad part about this is that all of this could have been avoided.
If American would drop out of NAFTA and the WTO right now things would automatically correct it self like it has always done for the last 216 years in America.
Posted by Harry Dingey on July 9th, 2009 at 4:54 pm.
Why is it our American Representatives in Washington keep telling the American People they are trying to create NEW Jobs in America?
That is a damn bare face lie.
This is discussing and not ONE SINGLE AMERICAN POLITICAN in Washington, either a Democrat or Republican will even talk about it or even ask the main Question “SHOULD WE CONSIDER PULLING OUT OF NAFTA and the WTO right now”.
“IF AMERICA WAS TO PULL OUT OF NAFTA and the WTO right now; how many Jobs would be automatically created in America?
Please, I do not want hear the stock answer “we can not do that because it will only make things worse and there will be a lot of jobs lost”.
Well, yes they are half-right because International Trade is like a ZERO-SUM-GAME. That means for every one job gained there is always one job lost.
But, my point is who gains that one job and who will lose that one job.
Yes, there will be many jobs lost in China, Japan, Germany, Mexico and India to name the countries where the balk of the jobs will be lost. That means for every job lost in these countries around the world America will gain an off setting job.
The answer to this question is there will be well over “FIFTEEN MILLION JOBS” created in America almost over night.
When I calculated this number it will vary year to year. But, it is always well over 12 million jobs created because the trade deficit varies every your and the number is rapidly growing every year.
I stand by my estimated Job creation of 15 Million jobs created in America within a very, very short time even if the rest of the world did not buy one-penny worth of EXPORT items from America.
You ask me “HOW CAN YOU SAY THAT”?
Here is my Computations and answer:
America Imported in 2006 mainly from China, Mexico, Japan and India well over $760 Billion Dollars more than we exported in 2006.
The $760 billion dollar import number that I am quoting includes Oil Imports which is something that American cannot change over night therefore must be subtracted out of total imported number. The total U.S. crude oil imported during 2006 amounted to: $309.4 billion in 2006.
So, $760 billion minus $309.4 billion = $450.6 billion dollars worth of Manufactured Goods that could have been produced right here in America. But, instead the Washington Politicians with all their Infinitive Wisdom elected to move all of that manufactured goods off shore to China. Even as America has up-ward of 16% unemployment rate and climbing.
Then to make things even worse the Federal Government had to borrow money from China and Japan to purchased back these vary products as they are being brought back into America. If you want talk about stupid that is just about as stupid as you can get.
All of these politicians should be tried for treason and every penny of their ill-gotten wealth confiscated and returned back to the U.S. Treasury.
This has to a Concerted Conspiracy because most of these politicians hold Major Educational Degrees from some of the best colleges in America.
I worked as Industrial Engineer for Rockwell International all of my adult life studying and computing labor rates, standards and practices. So please trust me I know exactly what I am talking about because this was my job for 30 years.
Based on conventional wisdom in job creation, if you take $450.6 billion dollars worth of imported goods / $30 billion to create one million jobs = 15.02 million jobs would be automatically created almost over night.
Here is the Main Problem in America.
The American People keep thinking their Representatives in Washington is looking after their interest and will always solve problems and do whatever is best for America and the American People.
Wrong!!!
If you do not listen to me then you are part of the problem too. If you think I am wrong go Goggle it and check it out. Then go to youtube.com and do key word searches and listen to the videos.
This is about Presidents, both Democrat and Republican Representatives in Washington who have turned the operation of running the Federal Government entirely over to the Council on Foreign Relations (CFR).
In case you don’t know; the CFR was founded in 1921 by some super wealthy JEWS who wanted to control and over-throw the American Government. This also why Israel always gets exactly whatever they wants from America. America has been helping Israel in every way possible even to the point of using borrowed money. Then they try to destroy the American Government in every way they can find.
The CFR plans consist of pushing International Trade Polices NAFTA and the WTO through the American Congress in 1992 and 1993, Run a Huge National Debt to destroy America and the Currency, Over-run America with Illegal Aliens, drug pushers and terrorist across our southern border and knowing that at some point in time it would totally destroy the America System of Government, our Constitution, our Civil Liberties, our Civil Rights, cause so much National Debt and chaos in America. Then at some point the people would be glad to accept their great “One World Order of Government” as an aption.
Then they could combine of Mexico, USA and Canada and call it the “North American Union”.
Create a new currency to replace the dollar call it the “Amero”.
They also have plans drawn up to build a New Highway as wide as four-football-fields right up through the Middle of America to Inter-Connect all three Countries to save even more money on transportation cost on moving goods from the Ships in Mexico and use this new highway to distribute all of the Imported Goods primarily from China and Mexico.
Incidentally construction on this new highway has been temporally stalled due to the present down turn in the economy.
This whole CFR plan is really not a workable plan because if all the Industrialized Countries of the World transfers all of the manufacturing and best paying jobs off shore to China and everything is made in China with $2/day slave labor.
All of the workers of the Industrialized Countries will be working at Wal-Mart, flipping hamburgers at McDonalds or in the soup line and the slave labor of China will be making $2/day.
Please tell me who in the HELL will have enough money to Purchase all of that merchandise being produced in China by $2/day labor?
The answer is Absolutely NO ONE..
The CFR has had the mortal lock on the American Government since the 1920s. They have been behind every major decision made by the American Government at the highest Levels for many years.
If you think I don’t know what I am talking about, look at all the Presidents who was card-carrying members of the CFR.
President John F. Kennedy warned us about the influence and dangers of this and similar organizations. 10 days latter, he was shot dead in the streets of Dallas.
So long as CFR puppets remain in power, the murderers of JFK remain in power.
The CFR has figured out how to win every election every time. It is really very simple when you control most of the money in the entire world. They just buy Every Candidate of Both Parties before the election is even held then the American People picks the Winner.
You would be surprised how many times that has worked. If has work every time except in 1960 when the Mafioso sign up every member over 21 in the Chicago Cemetery and they all voted for JFK.haha
We can change that this coming election. All you have to do is cross all CFR members off your list when choosing our next President. Even if he is cross between a Skunk and a Gumboot he would be better than any CFR MEMBER..
Talk about a stacked deck. Look at these Candidates of both parties who run for President in 2008:
Fred Thompson (CFR) Republican.
Rudy Giuliani (CFR) Republican.
John McCain (CFR) Republican.
.
Mitt Romney (CFR) Republican.
Jim Gilmore (CFR) Republican.
.
Newt Gingrich (CFR) Republican.
RON PAUL = Was NOT a MEMBER OF The Council on Foreign Relations.
Barack Obama (CFR) Democrat.
Hillary Clinton (CFR) Democrat.
Barack Obama (CFR) Democrat.
John Edwards (CFR) Democrat.
Joe Biden (CFR) Democrat.
Chris Dodd (CFR) Democrat.
Bill Richardson (CFR) Democrat.
Look at these Past Presidents and Vice President who was Card-carrying Members of Council on Foreign Relations (CFR):
Barack Obama (CFR) / Joe Biden (CFR) Dem.
George W. Bush (CFR) / Dick Cheney (CFR) Rep.
Bill Clinton (CFR) / Al Gore (CFR) Dem.
George H. Bush (CFR) / Dan Quayle (CFR) Rep.
Ronald Reagan (CFR) / George H. Bush (CFR) Rep.
Jimmy Carter (CFR) / Walter F. Mondale (CFR) DEM.
Gerald Ford (CFR) / Robert Dole (CFR) Rep.
Richard Nixon (CFR & Quaker) / Gerald Ford (CFR) Rep.
Lyndon B. Johnson (not cfr) / Hubert H. Humphrey (CFR) Dem.
John F. Kennedy (not cfr) / Lyndon B. Johnson (CFR) Dem.
Dwight D. Eisenhower (CFR) / Richard M. Nixon (CFR & morman) Rep.
Harry S. Truman (CFR & JEW) / Alben W Barkley (CFR) Dem.
Franklin D. Roosevelt (CFR) / Harry S. Truman (CFR & Jew) Dem.
The only major Presidential Candidate in 2008 Election that was not a member of the Council on Foreign Relations was RON PAUL.
RON PAUL. Who was 100% for the American People and a Real American Patriot.
You see where he ended up?
Posted by Harry Dingey on September 25th, 2009 at 9:56 pm.
The market, as he always said, would correct itself and it sure did. It corrected him with a slap in the face so hard it knocked that chesire smirk off his face. Economic theory, fah!
Americans realize now what it’s like to be less wealthy. They are feeling the sqeeze now with this new engineered economic disaster (it wasn’t a mistake, it was inevitable.) I guess most Americans don’t mind that most parents now work to just make ends meet. Talk about family values. There are basically none when the middle class comprise of just latch-key kids.
Really, really stupid economists. Economic theory never consideres two countries wealth or cultural differences. They describe ‘typical’ economies as the ones they know. Even if you take all the crazy protectionist measures away from Asians, they are still team players and they are still savers. Our international trade is a losing battle for Western spend thrift citizens. We never had a chance. But still, even with their cultural advanges, they will do everything possible to never have a trade imbalance with the west. Just look at Japan, for instance. The number two economy in the world and their coffers are rich from trade surpluses, and exactly how many American built cars do they import annually?
The politicians aren’t really that stupid. Just like debt, a trade deficit is just delayed taxes. All they care about is low interest rates which makes an economy appear to be successful, which in turn makes them more likely to get elected. So funny how foolish man is; thinking that debt has no consequences and lowering a countries standard of living for convenience sake is a good idea. Hah!
Posted by ron_o on November 17th, 2009 at 10:37 am.
As long as foreigners are able to immediately redeem these freshly printed US T-Bills, Bonds, ands other instruments for title to existing privately owned businesses, factories, casinos, hotels, farms, land, ports, businesses, refineries, forests, ports, breweries, refineries, and other assets that were created by previous US generations, instead of redeeming US dollars for Gold, the foreigners in industrial countries will continue to buy our freshly printed US T-Bills, Bonds, or other Securities, and US citizens will not have to work to create assets.
When those foreigners have purchased title to everything of value in the USA, the US government will no longer be able to raise US dollars from these foreign manufacturers by printing fresh T-Bills, Bonds, or other Securities to pay for our US government expenses.
The US importers and distributors pay foreign manufacturers in foreign countries with US currency (Dollars) for the products that US consumers purchase. These foreign countries do not buy very many dollars worth of anything from the USA because our products are much more expensive than foreign made products, and sometimes US products are not as good.
The US Government stopped redeeming US dollars for gold from our gold reserves at Fort Knox in 1971 or 1972 and is now redeeming our US T-Bills, US bonds, US dollars, and etc. that foreigners earned by making products for US consumer consumption with title to privately owned businesses, factories, casinos, hotels, farms, land, ports, businesses, refineries, forests, ports, breweries, refineries, and other privately owned assets located in the USA that were created by previous US generations.
This allows US citizens to sell assets created by previous generations to foreign manufacturers in lieu of US citizens having to work to produce the things that US citizens consume. These privately owned US located assets are finite. The USA will soon run out of things created by previous generations to sell to foreigners.
The US government plan sems to be to print-up more Bonds, T-bills, and other interest bearing paper products and sell these freshly printed paper instruments to foreigners in order to get back some of the US dollars that US citizens paid foreigners to make our imported consumer goods (and energy) back from China, India, Brazil and other foreign industrial nations so that the US government can then use these dollars to:
pay unemployed US citizens when they are not working;
pay contractors to re-build US infrastructure;
pay for US citizens to fight various wars;
pay local US city and state bureaucrats that are in danger of losing their jobs because local taxes are not high enough to continue their employment;
pay local US teachers where the local taxes are not high enough to continue the teacher’s employment;
pay medical doctors, nurses, and hospitals to provide unlimited free medical care for all citizens;
pay artists to paint pictures;
pay poets write poems, or perform in a play;
pay musicians to write songs, or play music in the park;
pay the house payments of those citizens who cannot pay their house payments;
pay for our other rapidly increasing US government expenses;
pay citizens to dig holes, and then re-fill the same holes;
pay citizens to rake leaves;
pay citizens to take a picture of a Crucifix in his own urine;
pay citizens to pave roads;
pay citizens to plant trees:
pay citizens to clean up the environment;
pay citizens to invent new financial products, or bailout failed financial businesses.
These jobs will not be useful or contribute anything to correcting the basic USA economic foundation problem, which is the foreign trade deficit and the Federal Government Spending deficit. We most stop borrowing US dollars (back from foreign industrialized nations) to pay for government expenses.
Posted by Gerald Spencer on December 16th, 2009 at 2:34 pm.