Warren Buffett: The Greenback Effect

The United States economy is now out of the emergency room and appears to be on a slow path to recovery. But enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects. 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.

To understand this threat, we need to look at where we stand historically. If we leave aside the war-impacted years of 1942 to 1946, the largest annual deficit the United States has incurred since 1920 was 6 percent of gross domestic product. This fiscal year, though, the deficit will rise to about 13 percent of G.D.P., more than twice the non-wartime record. In dollars, that equates to a staggering $1.8 trillion. Fiscally, we are in uncharted territory.

Because of this gigantic deficit, our country’s “net debt” (that is, the amount held publicly) is mushrooming. During this fiscal year, it will increase more than one percentage point per month, climbing to about 56 percent of G.D.P. from 41 percent. Admittedly, other countries, like Japan and Italy, have far higher ratios and no one can know the precise level of net debt to G.D.P. at which the United States will lose its reputation for financial integrity. But a few more years like this one and we will find out.

An increase in federal debt can be financed in three ways: borrowing from foreigners, borrowing from our own citizens or, through a roundabout process, printing money….

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Posted in * Economics, Politics, Economy, Office of the President, Politics in General, President Barack Obama, Taxes, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The Fiscal Stimulus Package of 2009, The National Deficit, The Possibility of a Bailout for the U.S. Auto Industry, The September 2008 Proposed Henry Paulson 700 Billion Bailout Package, The U.S. Government, The United States Currency (Dollar etc), Treasury Secretary Timothy Geithner

6 comments on “Warren Buffett: The Greenback Effect

  1. Stephen says:

    If he were really so concerned, why would he back the candidates that look to increase government spending and ballooning deficits? Gee, a socialist that doesn’t want big spending by the government. Sounds like Mr. Buffet is afraid of getting exactly that for which he asked.

    I think I just better step-away while I do my Muttley impersonation.

  2. Jeffersonian says:

    If printing money made a nation wealthy, we’d all be working for Robert Mugabe right now.

  3. DonGander says:

    More evidence that our education system is broken. We (the majority) elect the very people that cause the problems we most dispise.
    Our nation character is low and falling.

  4. Joshua 24:15 says:

    The Sage of Omaha would be a lot more concerned, Stephen, if he had some real skin in the game. As it is, billionaires like Buffett, Gates, and George Soros can well afford to indulge their liberal tendencies. They’re fully insulated from the worst effects of currency devaluation, while the rest of us proles get to enjoy the consequences.

  5. Chris says:

    Did Warren predict the recession last year? I don’t think so, which is exactly why I’m not paying any attention to him now. The Oracle of Omaha, my (you know what)….

  6. Laura R. says:

    Chris, I don’t think that Buffett is called the “Oracle [or sometimes Sage] of Omaha because of any imputed ability to foretell the future, economic or otherwise. Indeed, I believe that he would deny having any such ability. His renown rests rather on his investing abilities, which often involve a basic common sense that runs counter to the frenetic reactivity of most Wall Streeters.