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Warren E Buffett warns of the ‘Greenback Effect’

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”

Check out Buffett’s Op-Ed Column in yesterday’s edition of New York Times

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

USA remains in critical and uncharted territory….Future Generations may get bonded with this Growing Debt and a period of High Inflation and a Weakening Dollar,for no real fault of theirs

It’s really amusing to now hear Economists discuss whether the Worst is Over or not and what type of Recovery will take place !…L Shaped ? U shaped ? V shaped? W shaped ?…They’re just playing with letters !

In this respect,you must refer to a July 18-24,2009 edition of ‘The Economist’ that has superbly put into perspective how the Study and Application of Modern Economics Theories of the past has been completely useless ….Their cover says it all depicting a Book of Economics in a Melting State.In the same issue you can access two briliant pieces on State of Macroeconomics and on Efficient Market Hypothesis in Financial Economics
Economists have caused the crisis,failed to spot it and have no idea how to fix it
Paul Krugman , who won the 2008 Nobel Prize for Economics confessed 

“Much of the last 30 years of Macroeconomics was “spectacularly useless at best ,and positively harmful at worst” ”




3 thoughts on “Warren E Buffett warns of the ‘Greenback Effect’”

  1. Dear Gaurav,
    This post and the links you graciously provided are must-read for all those wanting to get to the bottom of the whole imbroglio. The most noteworthy point you made is that for US economy to survive in its present form without a revolution, her households must save and consume at the same time-only hitch being this time around banks dare not help them even if they hypothetically can! Believe me, the only way they can rescutitate the economy in the medium term is by militarism-remember wars have achieved that for them in the past!

  2. Dear Gaurav
    this post not only demolishes many round about stories that the rocking chair economist are dishing out everyday. America’sfuture generation is already in debt and what is needed is surgery now.You should save and you should spend at best can be described in two lines of old Guru Dutt’s movie song”KAISE BAZAR KA DASTUR TUMHE SIKHLAUN, BIK GAYA JO WOH KHARIDAR NAHIN HO SAKTA”

  3. Hey Shyam and Welcome Sudhir….lovely responses…….linking it to a Guru Dutt movie song !..brilliant…love it…my style and wavelength too…Militarism!?When a country is bankrupt,there are five solutions,righteous and otherwise…steal…print…borrow…beg….earn and save….you need the military discipline to work hard,earn and save….what do you think USA is doing !?

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