Buffett Examines living in Squanderville
Submitted by
CalculatedRisk on Fri, 06/24/2005 - 5:17pm (26 comments)
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You left out the part about the burning down of Squanderville and the millions of dead people fighting as everyone falls apart.
None of these things ever happen quietly. Even the conquest of China took everyone 200 years and the fighting raged like crazy at several points in time, killing millions of people before the Chinese finally drove out the invaders and sorted out things, themselves.
Imagine that. See what is coming for us!
"All that the Thrifts want in exchange for their food is Squanderbonds (which are denominated, naturally, in Squanderbucks)."
This example misses out a critical point. For a fair trade to occur in the first place, the Thrifts decided to exchange their surplus food in return for Squanderbonds - which they cannot be immediately consume. This implies that at that point in time the Squanderbonds had value that was worth the surplus labor of the Thrifts.
On may ask, so how did the Squanders create this demand for Squanderbonds ? This point was missed in the example.
It also leads one to infer that the Squanders were more progressive than the Thrifts - otherwise they would not see any value in trading the Squanderbonds.
apparently buffet mades some direct comments on the CNOOC bid (mentioned in the comments section of my post) -- i'll try to find them
I think Warren Buffet and I see eye-to-eye. Moreover, it seems to be an apt view for interpreting the events of the past two weeks.
I'm watching to see if the Chinese make serious investments in agribusiness, since food is a vulnerability for them.
Another possibility is pharmaceutical intellectual property. This may be better because it can't be taken away.
Anyhow, it seems the Chinese are more interested in assets than US-produced consumer goods. Which means, the wealthy in the US are going to have a lot of cash on hand. If so, then they will probably want to move it out of dollars and therefore drive down the dollar creating a vicious cycle.
That's just speculation...
Buffett On China:
Buffett said he doesn't subscribe to the view that China is engaging in a trade war with the U.S. He said Chinese corporate takeovers, such as CNOOC Ltd's (CEO) recent bid for Unocal Corp. (UCL) were an "inevitable" consequence of the U.S. trade deficit. He noted that the U.S. imported far more goods from China than it sold to the nation.
"If we're going to consume more than we produce, we have to expect to give away a little bit of the country," said the "Oracle of Omaha."
CR:
As far as I can see, Buffet has a good sense of economics. No wonder he's rich.
Well, we will sell everything eventually. Like the phrase, "Selling the shirt off of our backs".
There is yet a another possiblity.
Squanderville simply defaults on the notes and seizes in the name of the state any assets that the Thrifts may have imprudently purchased.
The thrifts would have to use military action to enforce the deal or forget it.
Of course the Squanders have squandered prudently a bunch on their military.
The point being that the Thrifts would have to depend upon the government of the Squanders to enforce their claims.
Vader, that's what I've been wondering. What are the consequences to the Squanders when they reply to the Thrifts, "You want what's owed! Well we're not going to give it to you! We've got by far the strongest military, so what do you think your going to do about it?"
The other side is not a virtuous country of savers either, but a nation who wishes to protect and encourage their industries even if it is by imprudent means.
So rather than thrifts working extra hard to lend to the squanders, they have an industry of food growers, whose produce the Squanders would not buy except that it is being substidized and sold below market costs in order to keep thrifts that otherwise would be unemployed working. The goverment of the thrifts is using forced savings of its citizens to do this. If it was all truly free, the value of the imports to the Squaders would have crashed long ago as the value of their currency depreciated and the whole thing corrected.
All in all, I think Warren missed this one. DOes it make sense to save when savings creats no value to the saver? Does it make sense to purchase with promises that may never have to be fulfilled or if so at greatly reduced value.
In a contrary light, actions of US citizens make a heck of alot of sense.
Is there a connection between Vader and Darth?
First, I gotta get vorpal off that "eye-to-eye" thingie. The President's foreign policy trump card is "lookin 'im in the eye". This solved all problems in Hungrary, Poland, Russia, possibly any country you could name (but I was busy vomiting in the bathroom and missed the rest).
Like Gates, I have tremendous respect for Warren.
I can make a straight post, if I keep trying.
This could be it: Why are we talking to money bags fleecing the dirt cheap labor of 3rd world countries?
I like Warren more than Gates, for the following reason:
Gates uses FUD. (Fear, Uncertainty, Doubt). He hides his agenda.
Buffet seems to be big on transparency. The agenda is written on the wall.
As far as the defaulting on US Treasuries goes, is this possible? What is to stop China from selling T-Notes to US citizens? I am not sure that defauting on foreign debt is a possibility without defaulting on all market-based debt.
Comments? Anybody? Anybody? Bueller?
Is this the the same 'vader' as in the "Oracle of Alabama" fame? If so it is a pleasure to hear from you...
I made no distinction between foreign and other debt in my comment on default. However, I expect that Congress could rise to the occasion if mobs were howling outside the senate and house chambers and pass the required legislation. After all the US is still a soverign powere.
Same Vader. Mostly lurking here and over at angry bear.
Most of what I could say is being said. So I am quiet. On the other hand, the Warren Buffet comment seems to be too odd to let pass without whacking at it.
China and the US are riding tigers for the same reason, to keep a class of folks from revolting. Has nothing to do with the ethical goodness of thrift. Soverign debt is too complicated to be simple. And even when the foreigners have the deeds, Govts can simply take care of that in any number of ways if it is in the national interest. Say take the factories and land giving the foreign folks government bonds in payment. Remember that SCUSA decision of this week on taking propery for the public good.
AND it has happen in the past in other countries.
You know dry fly - no 'just lurk' for him... mouth too big, foot too tasty.
I have the same disease, but you keep beating me to it.
First foot in mouth is interesting.
Second particpant is just lacking hygene.
China and the US are riding tigers for the same reason, to keep a class of folks from revolting. Has nothing to do with the ethical goodness of thrift. Soverign debt is too complicated to be simple.
I agree vader - I was part of a group paper/presentation on a Chinese state run enterprise exporting to the US for an MBA class I took this last spring... We did a lot of reading on Chinese political structures (especially the CCP & the Standing Committee of the Politburo) and how they meddle in everything.
While these folks don't make day-to-day decisions on things like the CNOOC bid... they picked the people who did... or picked the people who picked the people who did...
In any event... there is a lot more to these decisions then just 'business economics'...
Agree and maybe contrary to most have had a preference for Buffett.
I think you're giving our present politico and financial pimps and whores too much credit for looking out for the good of the country.
Have zero respect for paper professionals or those not in genuine productive side and exports.
Contrary to most here, but I am not alone when state that the hot air and paper pumping univs ruined the country with what they pumped out. Yuppies (and all their soft, weak offspring guppies produced) have gutted the economy, and so on.
The country is in big trouble. Too many in la la land denial.
I'd not blame the average joes or even the Yuppies. Lets take the devil's advocate view. If someone is going to throw money at you, do you refuse because of some possible future?
In brief, either you can go into hock and have part of the life you wanted or you can save and have none, only to lose the savings to inflation or misadventure?
One issue that keeps popping up is that on the investment side, what the heck do you invest in? IMHO there is too much money chasing too few good investments already.
The pessimists have been consistantly wrong to date, so where is the proof that the masses are wrong except in the opinion of some elites?
Our leadership is a different story...
If I may, let me discuss Unocal-CNOOC for a minute.
Here is the CNOOC Unocal purchase proposal presentation with graphics and data. Moreover, a careful review of Unocal press releases for recent years fill in additional details about Unocal oil and gas field production projections around the world.
The more important point isn't that CNOOC wants Unocal and threw out a last minute unsolicited proposal to the Unocal board to acquire the corporation assets and technology to advance CNOOC's global strength position. Unocal and Chevron sealed their legal deal long before CNOOC tried an end run strategy backed by U.S. brokerage firms' interests. The U.S. national economic infrastructure security issues are what matter in this case. That's what will be tested as the CNOOC proposal is evaluated by the Committee on Foreign Investment in the United States ("CFIUS") in accordance with the Exon-Florio provision. The result may include a Congressional review of existing federal legislation pertaining to U.S. national security interests.
General arguments elsewhere that the U.S. has no choice but to approve all foreign corporate acquisitions by other nations and their corporate interests because the U.S. is now a debtor nation hold no water. Each proposed or finalized corporate acquisition will be evaluated in accordance with provisions of U.S. law including the Exon-Florio provision. To view the situation differently is to accept the notion that any and all foreign purchases or attempted takeovers (hostile or friendly) must be approved or rubber-stamped by the U.S. Administration without regard for U.S. laws or national economic security considerations. That is not going to happen in many more instances without a U.S. voters revolt if national security or national economic security considerations are involved.
I agree that many corporate acquisitions by foreign interests may occur during the next five or ten years. At issue is whether the existing U.S. law provisions regarding national economic security are adequate and whether U.S. administrations will take such responsibilities seriously. If a potential transaction doesn't involve the loss of key technology or assets, fine. If it does, that's another matter.
The point isn't that China wants to own an asset such as Unocal. I appreciate their interest. The question remains whether the U.S. leadership will protect any key economic assets and technologies. I don't have confidence in the Bush administration to protect very much. Similarly, I didn't like the flow of important technology out of the U.S. during previous administrations.
One consideration worth noting is that U.S. corporations do not have to sell
General arguments elsewhere that the U.S. has no choice but to approve all foreign corporate acquisitions by other nations and their corporate interests because the U.S. is now a debtor nation hold no water. Each proposed or finalized corporate acquisition will be evaluated in accordance with provisions of U.S. law including the Exon-Florio provision.
All I can say is we'll see... I don't think this decision happened in a vacuum over in Shanghai or Guangdong or wherever CNOOC is HQ'ed... Chinese state owned businesses just don't DO things like this without party approval in advance... even the timing was planned I'm sure of it... we might think it was last minute out of the blue... it wasn't.
My guess is this went right up the flag pole to the Standing Committee... possibly all the way to the Premiere... and they said take a shot, see what happens. Nor am I sure they even intended to 'win' this particular bid but rather are just throwing a handgranade into the Oval Office... a 'see what we can do, this is just the begininng'... then waiting & seeing what our guys do... forget what they say... but watch what they do.
And I DO BELIEVE our indebtedness & deficits will play a major role how we handle it... rhetoric aside. My guess is Bush will do nothing publically but send messages through oil friend back channels to Unocal that this can't go through as proposed... then hope it doesn't.
The interesting thing will be watching the fall out... will CNOOC play by our rules & push a hostile take over proxy fight and force Bush & congress' hand? I think it is a lose-lose for us no matter what we do... the best the US leadership can hope for is it goes away on its own... which it might if it was only a shot across the bow. But that is a lot to hope for.
A relevant article and commentary:
NYTimes: Behind China's Bid for Unocal: A Costly Quest for Energy Control
Krugman The Chinese Challenge
Agreed, df.
Thanks CR - you are indeed a 'resource'...
This country has too many Chiefs and not enough Indians. I say we fire the Chiefs