Warren Buffett on the Sharecropper Society

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Warren Buffett yesterday released his annual report to shareholders of Berkshire Hathaway. The report has become must reading, both for its business insights and its folksy, straight-forward style. This morning's press took different tacks on Buffet's message. The New York Times highlighted how there aren't any good deals to be found:

The mighty billionaire Warren Buffett says he has "struck out." The CEO of Berkshire Hathaway Inc. wrote in his annual report Saturday that he had hoped to make several multibillion-dollar acquisitions in 2004. He certainly had the money, so the problem? None to buy, he said.

The Sunday's Washington Post take was that Buffett is betting against the dollar:

Berkshire Hathaway Inc. said Saturday its fourth-quarter profit rose 40 percent to $3.34 billion on a $1.63 billion gain from contracts to buy foreign currencies at a future date. Buffett, 74, wrote in his annual letter to shareholders that the nation's trade policies "will put unremitting pressure on the dollar for many years to come."

However, what the press missed was Mr. Buffett's broadside again US trade policy. This is what Mr. Buffett said in his annual letter:


Berkshire owned about $21.4 billion of foreign exchange contracts at yearend, spread among 12 currencies. As I mentioned last year, holdings of this kind are a decided change for us. Before March 2002, neither Berkshire nor I had ever traded in currencies. But the evidence grows that our trade policies will put unremitting pressure on the dollar for many years to come - so since 2002 we've heeded that warning in setting our investment course. (As W.C. Fields once said when asked for a handout: "Sorry, son, all my money's tied up in currency.")

Be clear on one point: In no way does our thinking about currencies rest on doubts about America. We live in an extraordinarily rich country, the product of a system that values market economics, the rule of law and equality of opportunity. Our economy is far and away the strongest in the world and will continue to be. We are lucky to live here.

But as I argued in a November 10, 2003 article in Fortune, (available at berkshirehathaway.com), our country's trade practices are weighing down the dollar. The decline in its value has already been substantial, but is nevertheless likely to continue. Without policy changes, currency markets could even become disorderly and generate spillover effects, both political and financial. No one knows whether these problems will materialize. But such a scenario is a far-from-remote possibility that policymakers should be considering now. Their bent, however, is to lean toward not-so-benign neglect: A 318-page Congressional study of the consequences of unremitting trade deficits was published in November 2000 and has been gathering dust ever since. The study was ordered after the deficit hit a then-alarming $263 billion in 1999; by last year it had risen to $618 billion.

Mr. Buffet's remarks go on:


As time passes, and as claims against us grow, we own less and less of what we produce. In effect, the rest of the world enjoys an ever-growing royalty on American output. Here, we are like a family that consistently overspends its income. As time passes, the family finds that it is working more and more for the "finance company" and less for itself.

. . .

This annual royalty paid the world - which would not disappear unless the U.S. massively underconsumed and began to run consistent and large trade surpluses - would undoubtedly produce significant political unrest in the U.S. Americans would still be living very well, indeed better than now because of the growth in our economy. But they 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." But that's precisely where our trade policies, supported by Republicans and Democrats alike, are taking us.

Strong words from someone who has been around the block a few times!

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4 Comments

excellent to see much of what w.buffett said. other reports give sketchy account

He should just call it the "usury" society, considering the fact that are number one export is the dollar.

I heard that 60% of the US GDP comes from banks alone. I haven't researched it personally, so I can't personally confirm it from another source. But man, if that is true, that is sad.

I had been wondering if you might let me know just what exactly the midterm elections may possibly suggest regarding free college grants. It feels the Republicans are likely to look to slash almost everything they can cut and that probably means grants for education. I don’t grasp precisely how these people feel this nation is ever going to remain competitive, if the actual cost of higher education continues to increase, although grants end up being more difficult to get. It really is horrifying to think I'll be in debt $40,000 or even more along with not knowing when I may even get a job after I graduate in this tight economy.

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This page contains a single entry by Ken Jarboe published on March 6, 2005 9:50 AM.

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