Posted on 02/22/2010 1:13:43 PM PST by cycle of discernment
Buffett's Partner: 'It's Over' for U.S. Economy
Monday, 22 Feb 2010 11:42 AM By: Dan Weil
Charlie Munger, Warren Buffett’s longtime business partner in Berkshire Hathaway, warns in a new column that the U.S. economic empire is crumbling before our eyes, thanks to federal debt and poor planning.
In an article penned for Slate.com, Munger uses the form of a parable to explain how Wall Street’s love affair with gambling has destroyed America’s Main Street.
The article leads with this headline: “Basically, It’s Over.”
The Berkshire Hathaway vice chairman describes the economic history of Basicland, which happens to match U.S. history.
Early in its history, debt is unknown except for home mortgages and some consumer loans, and people live within their means. Speculation is discouraged, and commodities markets are small and tightly regulated.
Under this rational system, economic growth skips merrily along at a steady 3 percent, Munger explains.
Taxes are limited and pay for only “essential services” like fire protection, courts, and defense. Most taxes are collected on imports, and government spending matches that tax income. Debt via government bonds is limited.
Then things take a turn for the worse.
“The extreme prosperity of Basicland had created a peculiar outcome: As their affluence and leisure time grew, Basicland's citizens more and more whiled away their time in the excitement of casino gambling,” Munger writes.
Financial services soon grow to account for too big a portion of the economy, Munger says.
“The winnings of the casinos eventually amounted to 25 percent of Basicland's GDP, while 22 percent of all employee earnings in Basicland were paid to persons employed by the casinos, many of whom were engineers needed elsewhere.”
Then, a shock: Imported energy costs rise, and low-cost labor competition from abroad appears, Munger writes.
“Suddenly Basicland had to come up with 30 percent of its GDP every year, in foreign currency, to pay its creditors,” Munger writes.
The U.S. deficit — just the gap between spending and income in one year — is projected to hit $1.6 trillion in 2010. Total debt is project to exceed 100 percent of GDP starting in 2011.
In the parable, Munger strongly suggests that the United States take seriously the campaign of Reagan-era Fed Chairman Paul Volcker, who wants the big banks to cease pretending to be banks if they expect the freedom to trade securities on the side.
“He suggested that Basicland should strongly discourage casino gambling, partly through a complete ban on the trading in financial derivatives, and it should encourage former casino employees — and former casino patrons — to produce and sell items that foreigners were willing to buy,” Munger writes.
As the parable ends, none of the politicians listen, and Basicland turned into “Sorrowland,” Munger concludes.
The CRA was just one of several massive government boondoggles that created an irresistible opportunity for Wall Street. The Fed's low-interest policy under Greenspan was probably the biggest motivator combined with virtually nonexistent regulation of Fannie, Freddy and the derivatives markets. There's plenty of blame to go around.
Don’t be so ridiculously emotional. I say you are wrong and it stops there
I am an economic nationalist same as Pat Buchanan. That should simplify matters. I have worked in factories. My family owned one. I know when America was a producer nation and the profits from those factories remained with Americans
Demonic lunatics. Exactly.
Good post Parsy. I have no illusions about Wall Street and never blame this mess all on the Feds. And I despise the Feds with Barney Frank and Chris Dodd having major roles in the housing bubble
I blame Wall Street 50% and the Feds 25% and the Federal Reserve 25%
On his first point: American citizens didn't create the debt. Elected officials and like minded marxists in DC determined to bankrupt America.
On his second point: All of us who are responsible citizens planned well. We simply hadn't counted on our govt contriving a method to steal from us all that we saved over the years. It should be noted, we especially planned to protect ourselves from abject poverty, as well as the repulsive thought of becoming a govt subsidy. But our govt betrayed us.
Our govt stole our life savings, and our childrens and grandchildrens future to redistribute our life's blood and toil to Chrysler, GM, fed/international banks, unions, the internatational corp AIG, subsidized housing, general welfare, SEIU, ACORN, etc etc.
Sit down shut up and take it? Or fight?
You are right that there is plenty of blame to share. IMHO, the CRA gets a teeny weeny little part of it. For initiating poor loan docs. But beyond that, the characterization of the bankers, as poor little helpless lambs, being herded to slaughter by the gov’t is just laughable.
They couldn’t wait to get into this. They hijacked the scam and laughed all the way to the bank. Literally. And since Obama is now having an illicit affair with Wall Street, and the GOP is busy handling rattlesnakes and zapping poor economic cripples upside the head with the Power of the Holy Ayn Rand’s spirit, I suspect they will laugh a whole bunch more.
And keep on perpetuating the image of themselves as little red headed stepkids, replete with hand broom and ash scooper.
parsy, who will keep ringing the alarm bell
You are right that there is plenty of blame to share. IMHO, the CRA gets a teeny weeny little part of it. For initiating poor loan docs. But beyond that, the characterization of the bankers, as poor little helpless lambs, being herded to slaughter by the gov’t is just laughable.
They couldn’t wait to get into this. They hijacked the scam and laughed all the way to the bank. Literally. And since Obama is now having an illicit affair with Wall Street, and the GOP is busy handling rattlesnakes and zapping poor economic cripples upside the head with the Power of the Holy Ayn Rand’s spirit, I suspect they will laugh a whole bunch more.
And keep on perpetuating the image of themselves as little red headed stepkids, replete with hand broom and ash scooper.
parsy, who will keep ringing the alarm bell
I agree with your allocation. The “Feds” including a good mix of both parties.
parsy, who can’t figure out how some people don’t get the Wall Street connection
Wars.
As if they are not joined at the hip. Goldman Sachs and the NY Fed run the USA.
Soros’s dream is to have all monetary systems worldwide under one roof....he’ s soooo known for taking down countries systems...to achieve that and plays with countries like a pawns on a cheessboard...not to mention Bo is his current King on that board.
If Bos health package goes it will push that up to 53% add in cap and trade and the rest of the bull he’s pushing we’ll hit hard when we hit bottom.
I moved to an area that has a huge drug problem...I don’t see people on the street dealing kind of thing..but it is raft with arrests for stealing in the downtown area, even from peoples mailboxes! I’ve heard the crime rate has increased here this past year...kids stealing from their grandmothers etc. just to get that fix. Awful. Can’t imagine what it will be as things get worse!
You said weak puny government didn’t work. You said the Articles of Confederation were a failure.
Why has it worked so well in Switzerland?
Follow the money,,,
Don't look at the trees in the jungle look deeper,,,
O’Bammy and Soros are the “trees”,,,
Look deeper and you will see your Target...;0)
Democrats were responsible for protecting and enlarging Fanny/Freddy to make sure their worthless constituents got mortgages. George Bush’s failure was an idiotic faith in letting letting Wall Street do whatever it wanted. Letting Wall Street run wild with mortgage securitization and credit default swaps. The theory being that this is the free market at its finest
Alan Greenspan with his super low interest rates is another villain. Wall Street itself should get the most blame. They took the most loot home. Barney Frank didn’t get rich off this mess. Banksters got rich. Mortgage brokers got rich. I’ll bet most of those independent mortgage brokers aren’t even in business anymore. The ones who gave out mortgages with zero documentation...That Wall Street immediately took off their hands and securitized and sold.
Now why’d ya go and mess up my roll..Ha! You say deeper? Well I thought I’d reached the sludge with those two....your not talking Illuminatti, Rock-fellers, Builderberg and such are you? How about Gates, Buffet, and the likes of? No? hummmm ok I give...
Where/what was he raised as ?,,,mmmm?,,,
That money trail leads to the House of Saud as I can see,,,
Watch closely who get’s the kiss on the ass,,,
Ain't gunna be Israel...;0)...
Hahah...ashamed? You should be embarrassed!
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