Buffet is short the US Dollar

I got this email from someone. It was adapted from someone else’s article. I don’t know who, so I can’t provide a citation.

It is widely assumed that rising stock and house prices will keep American consumers both willing and able to spend, spend, spend their way to wealth – indefinitely. But the transfer of U.S. net worth to interests overseas is alarming, and it endangers U.S. economic and political health. Warren Buffett, who kept his vast fortune invested at home for more than 70 years, decided in 2002 to invest in foreign currencies for the first time. Buffett and management of Berkshire Hathaway believe the dollar is going to continue its decline. We should not need confirmation such as this to recognize the inevitable; but it bolsters the argument that the dollar is, in fact, in serious trouble, and that this trouble is likely to continue.

In addition to debt problems at home, Buffett made his decision based at least partially on the ever-growing trade deficit. He warned:

“We were taught in Economics 101 that countries could not for long sustain large, ever-growing trade deficits. At a point, so it was claimed, the spree of the consumption-happy nation would be braked by currency-rate adjustments and by the unwillingness of creditor countries to accept an endless flow of IOUs from the big spenders. And that’s the way it has indeed worked for the rest of the world, as we can see by the abrupt shutoffs of credit that many profligate nations have suffered in recent decades. The U.S., however, enjoys special status. In effect, we can behave today as we wish because our past financial behavior was so exemplary – and because we are so rich.

Buffett is especially concerned about the transfer of wealth to outside interests. He notes:

“Foreign ownership of our assets will grow at about $500 billion per year at the present trade-deficit level, which means that the deficit will be adding about one percentage point annually to foreigners’ net ownership of our national wealth. As that ownership grows, so will the annual net investment income flowing out of this country. That will leave us paying ever-increasing dividends and interest to the world rather than being a net receiver of them, as in the past. We have entered the world of negative compounding – goodbye pleasure, hello pain.”

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