While it’s sad to see Warren Buffett in his old age become a shill for the Obama administration, basically abandoning his past practice of focusing on the free markets. He does at least admit to the extraordinary problems emerging from throwing the unprecedented amount of taxpayers’ money and bailing out industry after industry.
Before we get into that, let’s look at a negative side of Warren Buffett in relationship to his interpretation of bailing out the financial sector. Buffett said in an op-ed piece in the New York Times concerning the spending: “How could it have been otherwise when supposedly indestructible pillars of our economic structure were tumbling all around them? A meltdown, though, was avoided, with a gusher of federal money playing an essential role in the rescue.”
Unfortunately, Buffett doesn’t really give the entire picture. He fails to note that there were many solid, well-run banks that could have taken over the deposits of consumers and bought up a lot of the assets of the banks. Even today, as bank after bank collapses, other banks are coming in and doing that very thing.
I do applaud Buffett for at least admitting the source of where all this comes from, while at the same time scratch my head over his acceptance of it. But at least he understands the dangers and consequences of where we’re heading, and is meekly sounding the alarm.
But look at the Keynes quote again. The secret to getting away with this for almost a hundred years since the installation of the Federal Reserve is to tax people through inflation. Just to simplify inflation for you, it’s the printing of money … nothing else. The consequences of printing money is prices rising and the dollar being weakened.
Since political races in the past have been decided by the tax question, very few politicians have the guts to support tax raises, so they go to the hidden tax route they’ve been trained to do through John Maynard Keynes, and the public ignorantly marches on wondering why they’re struggling like they are.
If the public ever begins to understand the source of inflation and why it’s happening, we could have a real monetary revolution on our hands which would change the world for the better.
Anyway, back to what the side effects of the outrageous bailouts and printing of money will be. For now, as Buffett notes, they may not be able to be identified, “For now, most of those effects are invisible and could indeed remain latent for a long time. Still, their threat may be as ominous as that posed by the financial crisis itself.”
We all need to hear that last comment again, that the supposed medicine being administered may be as big as the financial crisis. I would say it’s not a mere possibility, it’s a reality.
We have never been here before, as the largest deficit we’ve ever had in the past was 6 percent of gross domestic product. During this fiscal year it’ll rise to 13 percent of gross domestic product; something we’ve never encountered before, and with no past map to give guidance. The dollar numbers will be $1.8 trillion.
Translating this into publicly held debt (net debt), that number is skyrocketing by one point a month to close to 56 percent of gross domestic product, which not long ago stood at 41 percent.
There is no way this can continue on, and it won’t take long to find that out. If it goes on unchecked, as Buffett says, we’ll end up just another banana republic. This will happen because the U.S. dollar will continue to lose its value and add on to its already declining reputation. This rate of debt is not sustainable, and to continue on that path will end in the destruction of the U.S. dollar as it relates to value.
Ending his op-ed piece, Buffett says the “dollar’s destiny lies with Congress.” Do I hear him calling for an audit and reining in of the Federal Reserve? Sounds like it to me.
