Buffett: We're Going to Be Crushed Under Mountain of Debt

Buffett: We're Going to Be Crushed Under Mountain of Debt

f inance.yahoo.com

Some not-so-fun facts from Buffett's editorial today in the New York Times:

Congress is now spending 185% of what it takes in
Our deficit is a post WWII record of 13% of GDP
Our debt is growing by 1% a month
We are borrowing $1.8 trillion a year

$1.8 trillion is a lot of money. Even if the Chinese lend us $400 billion a year and Americans save a remarkable $500 billion and lend it to the government, we'll still need another $900 billion.

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Warren Buffett is very much a "mainstream" figure and a billionaire hooked into the power elite, so when he speaks in the press it is worth noting that he may or may not have an "agenda" of his own in terms of moving markets, etc.

Nevertheless, he has often been a contrarian and a voice of common sense in the past, and he has often been correct about future developments (and made lots of money being correct). He warned about Derivatives years ago and called them "weapons of financial mass destruction" as long ago as 2002. He is not a "bubble investor" by nature and I'm willing to bet the current developments disgust him as much as they do most of us (although he's much more well-cushioned than the average American, of course).

Still, its significant to hear this kind of baldfaced statement of gloom from a figure of Buffett's stature. I'll let you make your own mind up about this.

f inance.yahoo.com
(visit the link for the full news article)

Here's Peter Shciff's view on Buffet's letter:



The idea that we're being crushed under all of our debt is nothing new.

I have seen multiple projections in regards to this mountain.

One has the US debt outgrowing the entire gross domestic product in 2011 and another at 2012. These are the earliest. At the latest is 2019

Regardless, we only have a few years before the government becomes insolvent.

Even if we sold the entire US gold reserves off, valued at round 240 billion dollars, it would not pay for the annual US budget much less make any impact on a $15 trillion national debt.

We are headed for a huge mess of epic proportions.

The United States in some manner will have to declare bankruptcy, likely before some international body, assets will be liquidated, and the nation restructured. Meanwhile hyperinflation reduces the dollar to kindling for the wood stoves we'll all be using.

reply to post by MikeboydUS


The US has one advantage over nations like Argentina that slid quickly into hyperinflation: all our debt is denominated in US dollars. In fact, the US and Japan are the only two nations on earth to have debt denominated in their own currencies.

When Argentina's creditors came calling, they had to print up money to buy the US dollars necessary to pay them back, which led to inflation and degrading of their currency, which led to more creditors demanding US dollars, and thus more printing, and so on...a rapid, viscious circle.

The US, on the other hand, can simply run the presses and create money to pay its debt. Since our debt is so massive, this could very well lead to hyperinflation as well, but it would be of a different sort than that faced by most nations in this situation. I would predict a much slower form of inflation which could shade into hyperinflation...but at a slower, more grinding pace. This is not necessarily better, because it means it will take longer to "bottom out" and drag the pain out. Its like being a cancer patient versus being shot in the skull.

One thing I think is happening now...all the recent credit creation and bailout money is sitting in banks. This means the banks are, on paper, massively wealthy. Meanwhile the average American grows poorer. I think the general "strategy" is to create two seperate financial systems within one, as it were: massive wealth among a very small number of people and institutions, who will try to "sit on it" as long as possible while pushing the average American into a lower standard of living, actually REDUCING prices on that level. This is a kind of two-one punch that will make the rich even richer than one's wildest dreams. This plan could work for some time, but its probably ultimately due to failure, due to the fact that so much of our debt is now in foreign hands and thus we have put our financial architecture at the mercy of foreigners -- Something Andrew Jackson specifically warned us against.

Buffet is usually a strait shooter about economic forecasts.Everytime i hear about the dollars future i see those old film clips of the men freezing the @sses off standing on the soup lines.Who ever PURPOSELY sabotaged us should be shot.

The fed wants inflation. As misguided as it may be, They see this as a way to restore home values and repay the national debt with cheaper dollars. There is some logic to there plan but all I see is another bubble just waiting to pop and this time there will be nothing left to inflate it.
With inflation the fed believes home values will go up and as a result people will rush out and get home equity lines of credit and start using there homes as credit cards again to stimulate the economy. In normal markets that may be the case. But there are no jobs being created and no new markets to get rich in like the tek boom of the 90’s. Plus the added burden placed on the backs of small businesses to pay back a multi trillion dollar deficit, small business will be living very lean for years to come.