Charlie Munger
Long-time business partner of Warren Buffett, Charlie Munger, writes in a new article for Slate.com that “it’s basically over” for the United States economy.
In his article, the Berkshire Hathaway vice chairman constructs the parable of Basicland, whose economy just so happens to run parallel to that of America.
In the beginning of Basicland, people live within their means, debt is limited to mortgages and some consumer loans, speculation is discouraged, and taxes are limited and pay for only “basic services” like fighting fires, defense, and the court system.
As a result, the economy happily grows at a steady annual rate of 3 percent.
But things take a turn for the worse, Munger writes.
“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,” and financial services soon grow to account for too big a portion of the economy.
“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,” Munger writes.
Then, Munger’s tale takes a shocking turn: Imported energy costs rise, and low-cost labor competition from abroad appears.
“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.
Paul Volcker
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.
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hmmm food for thought!
this is B.S
Seriously Buffett and his partners back in 2007/2008 made more money from derivatives in forex and in stock options than any of their previous years, this was pure profit that they made and not "net worth" so where he comes with this, if it is even him i dont know. But they made something close to a billion trading FX options and Stock options.
We all like to blame, i think the blame should be put on TV mainly hollywood for showing them how people should live and then of course the ads on tv that SELL people on credit. They had an entire generation puffing on something that is illogical and that killed 90% of its victims
Today they dont adverise cigarrettes and you see less and less people smoking perhaps they should do it with adverts selling credit
Alex Jones has linked to this article:
http://www.prisonplanet.com/%E2%80%9Cit%E2%80%99s…
Thanks, Alex!
Many people – including former analyst for the U.S. Treasury Richard Cook – argue that credit is too important a function to be left to the private banks.
Indeed, even after taxpayers have given trillions in bailouts, backstops, guarantees, and other gifts, the giant banks are still not lending out much credit to individuals or small businesses.
Incorporate the Federal Reserve System into the U.S. Treasury where all new money would be created by government as money, not interest-bearing debt; and be spent into circulation to promote the general welfare. The monetary system would be monitored to be neither inflationary nor deflationary.
http://www.WebOfDebt.com
Only publicly owned banks should engage in fractional reserve banking.
http://www.WebOfDebt.com
How much of the worlds stock equity does the levels of enterprise funds and intitutional investors of various levels of government OWN around the world.
Likely it far exceeds 65Trillion the true debt obligations of the government.
CAFR not budget…
Wake up- It Is Now Mathematically Impossible To Pay Off The U.S. National Debt
Money is Borrowed into existence. More money is now owed than exists. Grow Food
http://sites.google.com/site/parrotandlinks/
If all of our debts were paid there would be very little money, since bills and coins together are only 7% of our money.
The problem is that our money and the money of most of the world is controlled by private interests. Only a sovereign nation can create sovereign currency, so why do the nations borrow money at interest when they are able to create the currency and collect interest?
It’s over, all right! Blame your filthy, corrupt government.
The nation needs to blame itself; turning to borrowing and lending takes away from our true treasures…God,Family and others. Interest on debt is sinful and evil by nature. That is what has made this unrecoverable. As God gives forgiveness, the debt holders need to forgive so we may all move on and turn away from doing it again. It really is just numbers on paper, we need to use the assets we have to make our wealth, we all have it, it is called labor.
California, outside the "budget book" in 1999, could have paid the national debt from just their STATE level investments and assets even after the "dot bomb", outside the pension fund surplus California Had 10 Trillion in CAFR known assets that could have been liquified; Orange County lost a BILLION playing derivatives in 1994 with out even blinking they cried close the pools, F.D. Parks but once it was found out that they had another 12billion they let the story die, that is just one county, in California. IBM is likely 80% owned by government funds, same with Motorola and upto 50% of many foreign stock exchanges may be owned by U.S. government funds. The national debt is a farse welfare for banks, just like the bailout. I do not think it is intended to be paid off and the 14th amendment puts forward the idea that it cannot be even questioned. Debts incurred by governments for fraud and illegal activities are nullified and do not have to be paid, this is a settled legal concept….
FROM SUNSHINE STATE TO SUBPRIME STATE?
THE SUN COULD SHINE AGAIN ON CALIFORNIA
Ellen Brown, July 13th, 2009
http://www.webofdebt.com/articles/sunshine_state….
HOW CALIFORNIA COULD TURN ITS IOU’S INTO DOLLARS
Ellen Brown, June 22nd, 2009
http://www.webofdebt.com/articles/california_iou….
THE SECRET OF CHINA’S MIRACLE ECONOMY:
THE GOVERNMENT OWNS THE BANKS RATHER THAN THE REVERSE
Ellen Brown, August 17th, 2009
http://www.webofdebt.com/articles/secret_of_china.php
CAMPAIGNING FOR STATE-OWNED BANKS
Ellen Brown, February 17, 2010
http://www.webofdebt.com/articles/campaigning_ state-owned_ banks.php
THE PUBLIC OPTION IN BANKING:
HOW WE CAN BEAT WALL STREET AT ITS OWN GAME
Ellen Brown, August 5th, 2009
http://www.webofdebt.com/articles/public_option.php
it is the western culture that is over, the reason is just the logic of it. now you reason on different meanings. the same took place when the roman empire collapse, they could not reason out progress. now we got a global collapse of what the capitalism you know is all about. however a new form of capitalism will emerge, how you call it is irrelevant. the end result is that wall street banks the lot are defunct, governments have become meaningless as the us army. reason why a total global disarmament of nukes is imperative.
The global crisis is a banking crisis brought on by mindless deregulation of the U.S. financial arena. Investment banks leveraged assets to highly irresponsible levels, issued questionable financial instruments with fraudulent investment grade ratings, and issued the instruments through direct sales to customers rather than through markets.
The crisis was initiated when the U.S. allowed Lehman Brothers to fail, thus threatening money market funds everywhere. The crisis was used by the investment banks, which controlled U.S. economic policy, to secure massive subsidies to their profits from a taxpayer bailout and from the Federal Reserve.
The obvious solution was to suspend the mark-to-market rule until some better idea of the values of the derivative instruments could be established and to prevent the abuse of shorting that was destroying market capitalization. Instead, the Goldman Sachs people in charge of the U.S. Treasury and, perhaps, the Federal Reserve as well, used the crisis to secure subsidies for the banks from U.S. taxpayers and from the Federal Reserve. It looks like a manipulated crisis as well as a real one due to greed unleashed by financial deregulation.
http://www.counterpunch.org/roberts02032010.html
@ Susan,there is no proof that saving any bank would help America in any way.
‘Only in theory’!We have proved that theory wrong already.Please let the too big to fail scenario die it is truly UN-American!Unless your Chinese or some other Communist country’s toxic waste.I don’t see why you would say such a thing.
@ArchAngelTruth – I totally agree. The banks should have been placed into an orderly bankruptcy. It would have been better to suspend mark to market than to bail them out of their risky derivatives and credit default swaps. Glass Stegall should have never been repealed and it should be reinstated ASAP!
Note not one crooked banker has gone to jail.
The CBA (Crooked Bankers Association) decided derivative gambling was perfect for stealing the taxpayers money. The TARP $1.25 TRILLION bailout was the first daylight
bank robbery in history another first for the Bush.Clinton.Obama mafia. The ObamaGMmobile just lost another $TRILLION and the HUMMER sank like a rock in water.