response to abitarecatania and buffett
In a commentary to my post about the impending destruction of the US economy (or the lack thereof), abitarecatania quotes Buffett's prediction about Squanderville being taken oven by Thriftville. My reply:
"Interesting. And yet:
-the value of houses has doubled since Buffett made his call
-the value of publicly-traded stocks has almost doubled.
-so the percentage of net worth owned by foreigners has stayed roughly the same.
-foreigners failed to increase their share because they were robbed by the increased M3 supply, which resulted in asset inflation.
-Americans were insulated from this inflation becuase they were invested in stocks in houses. Except the minority of Americans who were invested in cash and who therefore fared just as miserably as the foreigners. Anyway, they have been pauperized by now, so they won't count for the future net worth calculations.
-Foreigners who were smarter than the average could have done better by investing in American real assets rather than bonds, but they did not because they rightly figured that their own stock markets offered even greener pastures.
-It's unlikely that foreigners will ever own a large portion of American real estate, stocks, farmland, etc. becuase owning foreign property is only safe when you can control that foreign country's domestic policy, making sure that this country will protect your property rights. It is always safe for Americans to own assets in Nicaragua, but it's far less safe for Nicaraguans to own assets in America.
-The reasons foreign governments have been accumulating American bonds have always been more political than economic. To discontinue this policy would require a political decision, which has kind of always been looming on the horizon but for all we know, may never materialize.
-The trade deficit is already beginning to narrow, the dollar has fallen far enough, the farm economy is already fully competetive, the industrial machinery segment is on the way there, European exporters have lost competetiveness across the board, other exporters are losing it in every sector except commodities, only the Chinese exporters are still holding on.
Has the dollar exhaused its depreciation potential? Probably not. But the bottom is nearer than some panic-stricken people imagine. "
Indeed, with all my respect for Buffett, I would suggest that the ability to borrow, cheat on the loan and escape unpunished should be considered a strength rather than weakness...