Warren should try to explain how the US trade deficit in the earlier part of this decade was about the same as a % of GDP.

Yet on the 28 June 2001 the US index a compendium of currencies weighted against the US dollar was 121. The Dollar index is a weighted basket of currencies traded on the futures markets in Chicago.

It is now 82, which means there has been about a 32% drop in the value of the US dollar. The index disguises the real weakness of the Dollar against say the Euro where it fell from its highs of 2001 when it was 84 cent’s to the present rate where the Euro buys you 1.35 cents.

Oil has risen from about 27 bucks a barrel to 65 these days.

The US trade deficit is largely a monetary problem created by the US printing far too many dollars and the Chinese (in particular) taking is those dollars who then are forced to print large amounts of Yuan because of the peg.

As an aside

Warren was against the income tax cuts ( they didn’t effect Warren of course, so Warren didn’t have a problem with them).

The US has finally done the right thing and begun to price airport usage fairly. Heavy planes were charged a lot more than smaller jets and props despite the fact that size doesn’t really matter all that much when accessing an airport. Small jets took slots at major US airports during peak times for as little as 200 bucks a take off or landing when the other carriers were being charged multiples of that.

Of course Warren was up in arms about this suggesting it was unfair. So it seems that when taxes etc., directly impinge on Buffet he doesn’t like them just like anyone else. In this case Netjet (think its called) was going to get hit with extra charges.

Yes, the credit card limit won’t rise forever but it can rise a very very long way above where it is now. In an efficient market that would have its own effects on the interest rates at which the lending would take place but I expect the adjustment will be less smooth than we might like. Even so I still think you need good reasons to depart from the ‘natural’ course of events and to prevent current and capital accounts operating efficiently in relation to each other – which they can’t if you mandate balanced trade.

I’m not sure how much Buffett’s system could be gamed. It couldn’t be gamed any more than tariff and other subsidies can be gamed with physical goods. With invisibles one can imagine larger problems in some areas.

And sorry, Nic, but I still get amused at your special pleading for the auto manufacturers’ favorite rort.

“which so many developing countries have succeeded with lavish export subsidies”

exactly. Why refuse an underpriced good if it is offered to you? If someone else is daft enough to sell you something below cost price, you buy it now. And you buy it on credit, especially if other countries (like Japan and China) are kind enough to give the credit to you at heavily subsidised low interest rates whilst the investments you make in those countries are high divident earners. Why refuse all these free lunches? Buffet’s ideas make no sense for the states, and they dont make sense for Australia. There is something to be said for increasing savings by letting the government do the savings, but forced import permits are not the way to go.

The rub here Nicholas is that you are talking about real savings as distinct from nominal ones. The problem with the money supply horse having bolted over a number of years, is that currently people(particularly all those baby boomers nearing retirement) feel their nominal savings are adequate and real, both now and into the future. The Austrians would say lax money has fooled them to conclude that. If money supply had been held stable, the real state of their savings would have been immediately apparent to them and no doubt they would have adjusted their behaviour accordingly, long before now. Curiously enough, govt Future Funds may be in exactly the same boat here, unless they are used to invest in real, productive investments, say in capital hungry countries like China and India, rather than helping to inflate the MDC asset price bubble further. Even that may prove futile when the bubble bursts. If the problem really was caused by cranking the printing press then there’s only one logical solution. We all need a lesson in real savings and investment.

Buffet is a fruit cake when it comes to economics and a darn bit dishonest too. It seems that the sage has no problems raising other peoples taxes when he pays very little income tax himself. In fact Buffet would be well down the list as a taxpayers each year and would quite possibly rank with mid levels executives.

Several years ago Buffet’s salary was about US$100,000 at Berkshire. His firm have never paid dividends. Most of his deals like the company jet are part of the perks of his office. In fact Berkshire actually owns NetJet one of the largest providers of private jets in the country.

Buffet thinks he should be the only person who is rich.

Ignoring the more recent Asian tigers, the world economy in the post war era, largely consisted of the MDCs and they had a special demographic characteristic, which would become obvious in the (unpredicted) stagflation of the 70s. Essentially if you pumped any extra money(or govt demand) into that economy then, it would immediately show up as price inflation as the glut of youth/ new household formers pushed on the capacity of the economy to accommodate their insatiable demand(unlike that of their parents)Couple that with the explosion of women into the workforce and the economy couldn’t cope with full employment either, the latter problem it has just about managed to solve nowadays. That was the unprecedented stagflation of the 70s. Fast forward to today and lax money has very different effect IMO. Put extra money supply into the baby boomer demographic’s hands now and they go and buy assets with it, trusting that this will keep them in their retirement. What’s more the govt actively encourages them to do so with super and they can negatively gear to speed up the process as well. With rising asset prices, why wouldn’t any thrifty outsiders want to lend to them too, particularly if they can invest freely in the game as well (no exchange controls), with the hope of retiring alongside them too, when they get citizenship as business immigrants naturally. Everybody’s happy playing the new demographic game, except the Austrians on the sidelines who are shaking their heads like Mr Buffett. The question we really need to ask ourselves right now is this- How much of current super fund drawdowns by existing retirees, is being covered by real returns to capital and how much by asset price inflation? That game of musical chairs, like unfunded govt super schemes past, will only play out fully when all the baby boomers paying into the system now are no longer paying in, but drawing down. IMO we have a way to go before the Austrians are proved right in a very big way. It’s the money supply stoopids!

But why would you want to balance trade? Just as a company can borrow to build a factory, nations can run trade deficits to build their productive capacity. Buffetts concern is that America is not investing its increased borrowing that its just living it up on the credit card.

A possibly ignorant question: Won’t the credit provider in this case simply cease providing credit increases? Or is the real problem that China has very poor risk management in this case (brought on by their insistence on the continuing use of foreign exchange controls)?

I realise the consequences are pretty dire for a collapse in confidence in the US currency, but increasing regulation like this would surely be a massive inducement to “game” the system of import/export credits with scams.