I.O.U.S.A - Addison Wiggin [33]
“ Our country ’ s ‘ net worth, ’ ” Buffett writes in the introduction of his Fortune article, “ is now being transferred abroad at an alarming rate. A perpetuation of this transfer will lead to major trouble. ” And it may be more than just economic trouble. History shows that countries with similar trade and debt problems are fertile ground for political movements we ’ re not accustomed to in a democratic society.
In 2007, the total U.S. trade defi cit was $ 738.6 billion, which is down 9 percent from 2006. Much of the decline could be attributed to a decline in the value of the U.S. dollar. The popular argument suggests that a lower dollar makes production of goods in the United States cheaper and therefore more attractive to buyers of U.S. goods overseas. Exports would go up. And in fact they are, each year.
Some would argue that the dollar is being kept weak to help close the trade gap. “ If I could fi nance all my own consumption today by handing out something called Warren Bucks or Warren IOUs and I had the power to determine the value of those IOUs over time, believe me, I would make sure that when I repaid them ten or twenty years from now that they were worth less, per unit, than they are today. So any country that piles up external debt will have a great temptation to infl ate over time, and that means that our currency, relative to other major currencies, is likely to depreciate over time. ”
And this is just what the United States is doing. From November 2002 through August 2008, the dollar has fallen more than 50 percent aganist the euro. Some experts will argue that a weaker dollar benefi ts the United States — at least where the trade defi cit is concerned.
What is not pointed out in this argument is that a falling dollar paired with low domestic productivity means that the c04.indd 62
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Chapter 4 The Trade Defi cit 63
country is consuming more than it produces. In that sense, since the dollar is losing purchasing power, Americans are paying more for these imports, and the rise in these import costs erases any sort of benefi ts the country would have seen because of a falling dollar. In other words, America is getting Purchasing
fewer goods for the same amount of money — but that isn ’ t Power: What slowing down the rate of American consumption. “ In the past money is considered to be
six or eight years, ” Buffett explains, “ the United States has worth, as measured started consuming considerably more then it produces. It ’ s by the quantity and relied on the labor of others to provide things that are used quality of products every day. Because the country is so rich, this can continue for and services it a long time, and on a large scale — but not forever. ”
can buy.
Buffett likens it to a credit card. “ My credit ’ s pretty good at the moment, ” he says, which usually draws snickers from the audience. “ If I quit working and have no income coming in but keep spending, I can fi rst sell off my assets and then, after that, I can start borrowing on my credit card. And if I ’ ve got a good reputation, I can do that for quite a while. But at some point, I max out. At that point, I have to start producing a whole lot more than I consume in order to clean up my debts. ”
The trade defi cit aside, Buffett doesn ’ t believe that the economic situation in the United States is as dire as many of the other experts with whom we ’ ve spoken have made it out to be. While he warns to not “ bet against America ” because he believes that we have an overall healthy economy, what does keep the Oracle of Omaha up
at night is the imbalance between
imports and exports.
The rest of the world is buying
“ The rest of the world is buying more and more of our goods all more and more of our goods all the the time, but at an even greater rate, we ’ re buying more and more
time, but at an even greater rate, we ’ re of theirs. More trade, overall, is buying more and more of theirs. good — as long as it ’ s true trade.
More trade, overall, is good — as long If it ’ s pseudo trade,