Buffet's column
http://www.nytimes.com/2009/08/19/opinion/19buffett.html
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. Let’s look at the prospects for each individually - and in combination.
The current account deficit - dollars that we force-feed to the rest of the world and that must then be invested - will be $400 billion or so this year. Assume, in a relatively benign scenario, that all of this is directed by the recipients - China leads the list - to purchases of United States debt. Never mind that this all-Treasuries allocation is no sure thing: some countries may decide that purchasing American stocks, real estate or entire companies makes more sense than soaking up dollar-denominated bonds. Rumblings to that effect have recently increased.
Then take the second element of the scenario - borrowing from our own citizens. Assume that Americans save $500 billion, far above what they’ve saved recently but perhaps consistent with the changing national mood. Finally, assume that these citizens opt to put all their savings into United States Treasuries (partly through intermediaries like banks).
Even with these heroic assumptions, the Treasury will be obliged to find another $900 billion to finance the remainder of the $1.8 trillion of debt it is issuing. Washington’s printing presses will need to work overtime.
The ominous prediction about the fate of the dollar have been voiced for quite awhile now, I first heard them about a year or so ago. The question is, what to keep your finances in instead of US dollar?
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. Let’s look at the prospects for each individually - and in combination.
The current account deficit - dollars that we force-feed to the rest of the world and that must then be invested - will be $400 billion or so this year. Assume, in a relatively benign scenario, that all of this is directed by the recipients - China leads the list - to purchases of United States debt. Never mind that this all-Treasuries allocation is no sure thing: some countries may decide that purchasing American stocks, real estate or entire companies makes more sense than soaking up dollar-denominated bonds. Rumblings to that effect have recently increased.
Then take the second element of the scenario - borrowing from our own citizens. Assume that Americans save $500 billion, far above what they’ve saved recently but perhaps consistent with the changing national mood. Finally, assume that these citizens opt to put all their savings into United States Treasuries (partly through intermediaries like banks).
Even with these heroic assumptions, the Treasury will be obliged to find another $900 billion to finance the remainder of the $1.8 trillion of debt it is issuing. Washington’s printing presses will need to work overtime.
The ominous prediction about the fate of the dollar have been voiced for quite awhile now, I first heard them about a year or so ago. The question is, what to keep your finances in instead of US dollar?