Warren Buffett, one of the world’s most successful investors, has launched his most withering attack to date on the United States trade deficit, describing Americans as ”rich spending junkies” who could turn into a nation of ”sharecroppers”.
In his annual letter to investors in Berkshire Hathaway, the fund he has run for more than 30 years, Buffett painted a bleak picture of a future US in which ownership and wealth had continued to move overseas, leaving the economy in thrallto foreign interests and faced with financial turmoil and political unrest.
He said his performance last year had been ”lacklustre”. He explained his mounting bet against the dollar in terms of a spiralling US trade deficit — which, he warned, may be approaching crisis point.
Buffett said Berkshire had built a $21,4-billion position in foreign exchange contracts, spread among 12 currencies. He said little appeared to have been done to tackle the problem, despite constant calls for action from ”hand-wringing luminaries”.
”Without policy changes, currency markets could even become disorderly and generate spillover effects, both political and financial,” Buffett warned. ”Such a scenario is a far from remote possibility that policymakers should be considering now,” the billionaire said, though he conceded policymakers’ ”bent, however, is to lean towards not so benign neglect”.
The 74-year-old told investors he ”tap-danced to work” and promised them this year’s meeting of investors would be another ”Woodstock for capitalists”. However, on the subject of the US trade deficit, his passions appear to be stirred. ”This force-feeding of American wealth to the rest of the world is now proceeding at the rate of $1.8-billion daily.”
Buffett said in the last 10 years foreign powers and their citizens had accrued about $3-trillion worth of US debt and assets such as equities and real estate. At current rates, he predicted that in another 10 years’ time the net ownership of the US by outsiders would amount to $11-trillion.
”This annual royalty paid [to] the world would undoubtedly produce significant political unrest in the US. Americans … would chafe at the idea of perpetually paying tribute to their creditors and owners abroad. A country that is now aspiring to an ‘ownership society’ will not find happiness in — and I’ll use hyperbole here for emphasis — a ‘sharecropper’s society’.”
Buffett squarely took the blame for the group underperforming the market for the second consecutive year, with a 2004 book value gain of 10,5%. ”My hope was to make multibillion-dollar acquisitions that would add new and significant streams of earnings … but I struck out.” In part, he said, he had been frustrated by a lack of ”attractive securities to buy”, leaving Berkshire with $43-billion of cash equivalents.
The International Monetary Fund is worried that global growth is becoming too reliant on the performance of the US and Chinese economies, according to a report on Sunday.
While the Chinese are seeking to slam the brakes on the country’s infrastructure spending, the Treasury Secretary, John Snow, described the US economy as ”resilient and dynamic”.
According to today’s edition of the German newspaper Handelsblatt, the IMF’s forthcoming World Economic Outlook report will warn of increasing risks to global growth if the US and China slow down at the same time.
”Global growth is to an inappropriate degree linked to the United States and China,” the IMF report will say when it is published next month.
”The eurozone and Japan, which together have about one-fourth of the world’s gross domestic product, have once again disappointed. Thus the risks are increased that there could later be a sharp downturn especially if the United States and China are hit with economic slowing.” – Guardian Unlimited Â