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Buffett's Partner: 'It's Over' for U.S. Economy
Monday, 22 Feb 2010 11:42 AM
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By: Dan Weil

Charlie Munger, Warren Buffett's longtime business partner in Berkshire
Hathaway, warns in a new column that the U.S. economic empire is crumbling
before our eyes, thanks to federal debt and poor planning.

In an article penned for Slate.com, Munger uses the form of a parable to
explain how Wall Street's love affair with gambling has destroyed America's
Main Street.

The article leads with this headline: "Basically, It's Over."

The Berkshire Hathaway vice chairman describes the economic history of
Basicland, which happens to match U.S. history.

Early in its history, debt is unknown except for home mortgages and some
consumer loans, and people live within their means. Speculation is
discouraged, and commodities markets are small and tightly regulated.

Under this rational system, economic growth skips merrily along at a steady
3 percent, Munger explains.

Taxes are limited and pay for only "essential services" like fire
protection, courts, and defense. Most taxes are collected on imports, and
government spending matches that tax income. Debt via government bonds is
limited.

Then things take a turn for the worse.

"The extreme prosperity of Basicland had created a peculiar outcome: As
their affluence and leisure time grew, Basicland's citizens more and more
whiled away their time in the excitement of casino gambling," Munger writes.

Financial services soon grow to account for too big a portion of the
economy, Munger says.

"The winnings of the casinos eventually amounted to 25 percent of
Basicland's GDP, while 22 percent of all employee earnings in Basicland were
paid to persons employed by the casinos, many of whom were engineers needed
elsewhere."

Then, a shock: Imported energy costs rise, and low-cost labor competition
from abroad appears, Munger writes.

"Suddenly Basicland had to come up with 30 percent of its GDP every year, in
foreign currency, to pay its creditors," Munger writes.

The U.S. deficit - just the gap between spending and income in one year - is
projected to hit $1.6 trillion in 2010. Total debt is project to exceed 100
percent of GDP starting in 2011.

In the parable, Munger strongly suggests that the United States take
seriously the campaign of Reagan-era Fed Chairman Paul Volcker, who wants
the big banks to cease pretending to be banks if they expect the freedom to
trade securities on the side.

"He suggested that Basicland should strongly discourage casino gambling,
partly through a complete ban on the trading in financial derivatives, and
it should encourage former casino employees - and former casino patrons - to
produce and sell items that foreigners were willing to buy," Munger writes.

As the parable ends, none of the politicians listen, and Basicland turned
into "Sorrowland," Munger concludes.

Let me save you some time in the future:

www.goldsilver.com

... compiles most financial news daily. It is almost as good as the Daily Paul for finding out what is going on in the world...almost

After some digging around I did find the original article.

Here is the link.

http://www.slate.com/toolbar.aspx?action=print&id=2245328

Considering the source, this should be a major wake-up call to all Americans.

but interesting. I just finished a book a MUST READ right away it is very enlightening to what is happening. It is called "The Shock Doctrine" by Naomi Klein it made the hair on my arm raise. We have got to help Ron Paul succeed in educating people are we are in deep doo doo.

http://www.therightperspective.org/2010/02/24/its-over-for-u...

Add 'Economic' something to your title, or at least something else that clarifies it isn't just a DP Site question thread. This needs some devoted DP sleuths attention(s). It is an interesting tidbit. I'm curious now.

With the current title people may pass it up thinking it is just another DP "What happened to my thread?" thread.