Warren E Buffett,while warning of consequences of the ‘Greenback Effect’, is bravely being Optimistic and Patriotic ,like every true blue blooded US Citizen should be !
Says Buffett, ” The United States remains by far the most prosperous country on earth,and it’s debt-carrying capacity will grow in the future just as it has in the past”
Buffett is happy that Obama and his Men showed the much needed Wisdom,Courage and Decisiveness required to address the US Financial Crisis…He urges them to continue this Momentum and make some hard decisions
USA ,maybe out of the ICU,yet remains in the Woods…financial situation remains critical….Fiscal Deficit will climb to 13% of GDP this year…that’s US $ 1.8 trillion Dollars…This would be funded half by a Net Current Account balance of US $ 400 billion(China-Foreign Debt Dependence) and Expectations of National Savings of US $ 500 billion and that these will be routed through the Banks into the Economy…The other Half Funding of US $ 900 Billion will probably be from Fresh Printing of New Currency Notes
What if China reduces,or even halts, it’s Investment in US $ Treasury Bonds for fear of a Weakening Dollar !?…Currently it has an exposure of US $ 800 Billion in such Bonds in it’s FX Reserves of US $ 2 Trillion…China,while retaining it’s US exposure, may opt to Invest the Dollars it’s earning from US exports,in other US assets,like Real Estate,Stocks and Buyout of Companies ,rather than in US Treasuries
The Net US Debt will climb to 56% (from 41%) of GDP…that’s a huge US $ 7 Trillion of Debt
There are paradoxical and Catch 22 situations that exist….The USA Citizens need to both, Save and Consume ! to stimulate the Economy…the former will help in Capital Formation and the latter will stir demand and revive American Industry…With Unemployment at 10%,where is the Income in the first place for Millions of the American Workforce !…Yet,when Push has come to Shove in USA,we’ve witnessed Savings climb to 5% from lows of 1% and 2%
Obama’s stimulus packages may have prevented a collapse and depression and a meltdown but the critical growing levels of Fiscal Deficit and National Debt and their adverse Impact on the Dollar is causing sleepless nights,not just in USA but the World over