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Friday, October 12, 2012

Gangrening the Greenback as Explained by Warren Buffett. Liberalism Has New Excuses for Spending and Printing Money.

Originally published 8.20. 2009

Gangrening the Greenback as Explained by Warren Buffett. Liberalism Has New Excuses for Spending and Printing Money.

Abstract: Warren Buffet writes what appears, a least in the preamble, to be a silly fluff piece. The article wanders about with an inclusive analysis of debt, deflation, inflation and spending but is rather blunt about impending inflation. This theme is out of line with Krugman’s assessment of inflation that routinely bores us in the NYT. Apparently out of place in this ragzine, there are some hints proffered by Buffett for incumbent leftist politicians as to their survival when inflation does break forth and sink the economy. There appear to be defense instructions hidden in the fluff and pedantry of this piece replete with justifications and handy excuses to push off the wrath of the voters into other avenues and allow reelection of loyal leftist in hard times. This disguised political survivor piece is similar to the counsel offered in  The Prince by Niccolò Machiavelli.[1]

The quest for the wealth of capitalists is an ongoing crusade in leftist circles and is boldly aided and abetted by the New York Times [aka the Walter Duranty Papers[2]]. Speaking bluntly, a form of expression that can only break through the neuronal scabs and psychological bastions of the average leftist persona, we can safely state that the only thing they can have on this planet is what they can steal from capitalists, the ignoranti or other worthy and successful people. The NYT is thus their Medusa who manifold snakes guide the followers through the sticky labyrinth of political influence and inculcate them with the proper use of propaganda. This rusty crank is tautologically turned daily. Today we read something new and, as a bonus,  it is refreshingly free of reverse racism and Nazi scare tactics for a change.

We must habitually trundle through everyday examples of tautological fluff and assorted ancillary hokum in pieces by the Times where the very few principles of the left are touted in nearly every paragraph. Today, however, we are treated to a novel and unbelievable treatise on butterfly effects from Warren E. Buffett that skirts around the usual leftist pulp disguised as economics and finance that we read from Paul Krugman[3] and this welcome variation in style and fact presents us with a rather stark but focused view of what is really happening in our economy. There is no apparent reason for this article to be even mentioned in the NYT given its disparity from the rote krugmaniacal rut that locks the Times into stale Keynesian economic revisionism, unless we probe deeper into the article. Here we seem to find a loophole for liberal legislators to jump through to escape the several approaching economic disasters that debt had granted us such as: high unemployment, spending deficits, inflation and debt. Let us comb through this piece and attempt to ascertain why this was published in this setting and what kind of signal it sends to the rabid left.

Buffet begins badly:
In nature, every action has consequences, a phenomenon called the butterfly effect. These consequences, moreover, are not necessarily proportional. For example, doubling the carbon dioxide we belch into the atmosphere may far more than double the subsequent problems for society. Realizing this, the world properly worries about greenhouse emissions.
The butterfly effect reaches into the financial world as well. Here, the United States is spewing a potentially damaging substance into our economy — greenback emissions.”[4]--The Greenback Effect By Warren E. Buffett Op-Ed Contributor Published: August 18, 2009  [Emphasis is mine in all quotes.]
What an analogy! Many actions have no consequences. This paragraph was seemingly written by a butterfly as it flitters from one point to another with cavalier cerebral abandon. The shifting of the sands, probably on the order of a trillion gazillion events or more per grain with respect to other local grains, on the North beach in Samoa from 654B.C.E. to 974 AD has no effect on either Rome or Carthage for example. The phrase for this nonsense is known as the fallacy: post hoc ergo propter hoc[5] and means that some apparent “correlation between two variables does not automatically imply that one causes the other.” Buffet has no notions whether butterflies, carbon dioxide or sun spots might cause future greenhouse effects and has even less of an idea whether the effect is arithmetic, geometric or some other mathematical nonlinearity.  But, the use of this mĂ©lange of unrelated nostrums that are glued together in this introduction to inflation theory in such a place as the New York Times is vague and unusual thus giving us the false notion that Buffet must be profound since we cannot grasp what he is talking about. He is not profound. He mumbles, but he mumbles for some reason. This foreplay may be a sop to the editors of the Times as their attention span is short and narrow in scope or he may have something important to say about elections. I think he has a message for the liberals in office.

False status and fears:
The United States economy is now out of the emergency room and appears to be on a slow path to recovery. But enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects. For now, most of those effects are invisible and could indeed remain latent for a long time. Still, their threat may be as ominous as that posed by the financial crisis itself.”-- Greenback Effect By Warren E. Buffett
A circularessay. There is no reason to suspect that we are free from the grip of a downward debt-driven deflationary spiral[6] at this time. Most of Europe is deflating and the deflationary aspects of our financial system are currently masked by the wild printing of money, sluggish money velocity[7] of lending at banks and posting trillions of dollars to tier 1 capital accounts of zombie banks[8] that are stone, cold dead. This fresh unanchored money offers the illusion that some of our banks are in point of fact solvent. Now, the bogeyman lurks in the dark swamps out of sight of normal mortals and may soon rise and search for food. This monster is inflation and her daughter is hyperinflation. This was obvious decades ago, but Buffy appears to be the Sage as he presents us with ‘new’ information and wise counsel.
Shifting to things that he can find in history books and after little paring of the fluff we get:
… If we leave aside the war-impacted years of 1942 to 1946, the largest annual deficit the United States has incurred since 1920 was 6 percent of gross domestic product. This fiscal year.… deficit will rise to about 13 percent of G.D.P., more than twice the non-wartime record. In dollars, that equates to a staggering $1.8 trillion. Fiscally, we are in uncharted territory.” Greenback Effect By Warren E. Buffett
The “we” here has no bearings on any reality landmass as many have been down the Road to Serfdom when money is printed willy-nilly and inflation or hyperinflation roars. That phenomenon has been well studied and Warren is chasing his own butterfly now. 
Finally some solid thinking:
An increase in federal debt can be financed in three ways: [1] borrowing from foreigners, [2] borrowing from our own citizens or, through a roundabout process, [3] printing money. Let’s look at the prospects for each individually — and in combination.” [Emphasis is mine in all quotes.]
Comments on [1]
The current account deficit — dollars that we force-feed to the rest of the world and that must then be invested — will be $400 billion or so this year. Assume, in a relatively benign scenario, that all of this is directed by the recipients — China leads the list — to purchases of United States debt. “--Greenback Effect By Warren E. Buffett
This is the external debt[9]—not the national or “public” debt. Public debt is the amount owed by the government to its creditors, whether they are nationals or foreigners. [10]That amount is now nearly 12 trillion dollars or about $38,834.95 on average per person out of 309 million total populations or for the approximately 60 million persons who actually pay federal taxes a sum of right at $200,000 each.
The interest on this debt in 2008 was $451,154,049,950.63.[11] The debt has increased every year since 1969. The yearly taxpayer’s interest load alone is now $7,519.23 for each of the 60 million who actually pay federal taxes. The government is apparently just printing money to pay off this interest as it comes due. Gee, doesn’t that just lead to more debt??
Note that this does not include Social Security which is in a separate account and taxed differently. That is another wreckage of leftist government to be dealt with soon.  
Note that Buffett fails to mention massive debt like the rubble of some 5 trillion dollars in phony mortgage debt that rots in Fannie Mae and Freddie Mac. This is what kind of debt? Not on the books yet?? The Fannie Mae ‘toxic debt’ alone adds another 5 x $16,000 to the taxpayer’s burden since this $16,000 is one trillion dollars divided by 60 million from above. That is $80,000 more.  [Gee, this builds up fast!] Notice that Buffett apparently thinks that Fed Balance Sheet transfers are not debt in any way and he is technically correct. This is partially true if that money can be clawed back [read unwound by Tim Geithner[12]] before it enters the fractional reserve banking system and gets into circulation.
An article by CNBC[13] thinks our Fed put out 7.36 trillion dollars around Nov. 13, 2008 and scattered it around the world:
Here are some financial hocus-pocus items featuring some technical language. Some of this money appears to be in terms of guarantees, whatever that means.
Government Entity
Amount Allocated in Millions of Dollars
Spent/Lent In Billions of Dollars
Federal Reserve:

(TAF) Term Auction Credit (allocated)
Discount Window Lending

Banks (other loans primary credit)

Investment Banks (other loans Primary dealer and other broker-dealer credit)

Loans to buy ABCP (other loans Asset-backed commercial paper money market mutual fund liquidity facility)

AIG (allocated minus Treasury 40B)
Bear Stearns (initial loan to JPMorgan)
(TSLF) Term Securities Lending Facility
Swap Lines (other federal reserve assets)

(MMIFF) Money Market Investor Funding Facility (allocated)

(CPFF) Commercial Paper Funding Facility *upper limit from Reuters
(TALF) Term Asset-Backed Securities Loan Facility

(TARP) Treasury Asset Relief Program
Exchange Stabilization Fund to guarantee principal in money market mutual funds

Treasury direct purchases of MBS since Sept.

Citigroup (Treasury+FDIC guarantees)


Guarantees for Banks



(FHA) Federal Housing Administration

Fannie Mae/Freddie Mac

7361 billions
7.36 trillion dollars
Gee, does this effort, whatever it might be swamp TARP? What is all this stuff?
Such funds, if they enter the banking system multiply by 10 in a short time!! Our M2 money supply then could soar from 8.3 trillion to 18.3 trillion if only one of those trillion dollar deals leaks out.[14]
Comments on [2]
Then take the second element of the scenario — borrowing from our own citizens. Assume that Americans save $500 billion, far above what they’ve saved recently but perhaps consistent with the changing national mood. Finally, assume that these citizens opt to put all their savings into United States Treasuries (partly through intermediaries like banks).
Comments on [3]
Even with these heroic assumptions, the Treasury will be obliged to find another $900 billion to finance the remainder of the $1.8 trillion of debt it is issuing. Washington’s printing presses will need to work overtime.”-- Greenback Effect By Warren E. Buffett
This is now trendily known as quantitative easing. This is a disaster.
Buffett tosses new fluff and watches the butterflies  flitter around the room as if we had not heard this from him already back in early May:
“Every country that has denominated its debt in its own currency and has found itself with uncomfortable amounts of debt relative to the rest of the world, in the end they inflate,” Buffett explains. That becomes a tax on everybody that has fixed dollar investments.”[15]--Buffett Sees Massive Inflation to Handle Staggering Debt. Monday, May 4, 2009 By Dan Weil [Emphasis is mine in all quotes]

Now the hammer:

With government expenditures now running 185 percent of receipts, truly major changes in both taxes and outlays will be required. A revived economy can’t come close to bridging that sort of gap.”-- Greenback Effect By Warren E. Buffett

The word outlays here seem to be inserted into the usual spot where the word spending is used. Is this Newspeak or Doublespeak? I thought Clinton said these were ‘investments?’

The outcome of such spending:
Legislators will correctly perceive that either raising taxes or cutting expenditures will threaten their re-election. To avoid this fate, they can opt for high rates of inflation, which never require a recorded vote and cannot be attributed to a specific action that any elected official takes. In fact, John Maynard Keynes long ago laid out a road map for political survival amid an economic disaster of just this sort: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.... The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”-- Greenback Effect By Warren E. Buffett

Well, Warren got that one right. Here is the hidden jewel in this fluff piece. This is so blunt we wonder why the NYT allowed it to be published. It clearly offers a license for legislators to print money and secretly accept inflation and avoid voter abuse so as to keep their phony jobs.

The remedy:

Our immediate problem is to get our country back on its feet and flourishing —“whatever it takes” still makes sense. Once recovery is gained, however, Congress must end the rise in the debt-to-G.D.P. ratio and keep our growth in obligations in line with our growth in resources.”-- Greenback Effect By Warren E. Buffett

Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar’s destiny lies with Congress.”-- Greenback Effect By Warren E. Buffett

The ‘whatever it takes’ blather is liberal code for more spending and phony stimuli.

This is quite blunt and is truth-in-lending as far as I can determine when we look at the economics and finance, but the salient message to the politicos here is two fold:

[1] To keep your phony jobs just print money and keep on spending and they will not be able to pin hyperinflation directly on you and

[2] If you want to put up the world’s biggest tax grab then feed inflation because that will reduce liquidity to the price of water and only tangible assets will have value.

[3] The debt will drop like a dead butterfly when it is ameliorated by hyperinflation and our grandkids will owe little or nothing if our currency collapses and the debt with it.

Buffet appears to offer this idea even though he hypocritically partakes of sweetheart deals with banks. His comment above about savers buying AAA Treasury Bills and such does not contain the information that they are going for auction currently at zero percent interest or ‘zero coupon’ in the trade. Buffet does not scruple to make 10% on his inside and sticky sweetheart deals and lecture the rest of us on conservation and EcoNazism[16].

From my previous blog:

We should live in a world where, like physics, some reasonable laws are known to govern many of our interactions and economics is clearly one of them. The elementary tenets of capitalism are well known since ancient times and the salient fact that massive spending by governments lead to inflation is obvious. Such warnings are common[17] such as outlined in the book Money Mischief by Milton Friedman published some 20 years ago. But, there are economic ‘experts’ and investment ‘oracles’ like Buffett  who criticize much about our economy [mostly for political reasons and Republicans in particular], yet seem to get sweetheart deals with preferred stocks in companies like Goldman Sachs , Dow Chemical,  Rohm & Haas and wallow unobserved in other deals that the public is not privileged to participate in.[18] Warren relishes his perch on Olympus as the Sage of Omaha and boasted that his tax rate was only 19% in federal taxes for 2006.[19] While posing as an investment guru he taught [20] this.  He and many other Democrats supported the massive Obama spending follies that will surely sink our economy with silence about the cliff we are approaching. His politics is more important than our economy although he wants to make money from the current chaos.[21] With insider help he will.


This is actually good news for the radicals. I suggested earlier in this week that with some new 100% confiscatory inheritance taxes following the Communist Manifesto word by word and setting up ‘managed’ healthcare [read euthanasia] that truncates the care for the old white folk, then a goodly chunk of the 57 trillion dollars controlled by the oldies can be transferred directly to the government in a decade or so.[22] At 5 trillion dollars a year this works out about right to pay off the current deficit and spend wildly on social programs.

The butterflies, are singing about this. Time to rob the bank. A sicklier plan exists only in the fevered minds of those in the California Assembly in Sacramento. Buffet appears slick compared to that mob.


Comments to:

[2] In honor of that celebrated Communist stooge and liar and winner of the Pulitzer Prize for the NYT. The color RED is used in my essays in honor of Walter Duranty, a saint, if there could be one, in the Marxist Archives of Honor. Red is in honor of Stalin. Walter Duranty.

“He said that these people had to be "liquidated or melted in the hot fire of exile and labor into the proletarian mass". Duranty claimed that the Siberian labor camps were a means of giving individuals a chance to rejoin Soviet society but also said that for those who could not accept the system, "the final fate of such enemies is death.". Duranty, though describing the system as cruel, says he has "no brief for or against it, nor any purpose save to try to tell the truth". He ends the article with the claim that the brutal collectivization campaign which led to the famine was motivated by the "hope or promise of a subsequent raising up" of Asian-minded masses in the Soviet Union which only history could judge.”
[4] The Greenback Effect By Warren E. Buffett Op-Ed Contributor Published: August 18, 2009 [Emphasis is mine in all quotes.]
[13] Financial Crisis Tab Already In The Trillions By |17 Nov 2008 |  “Given the speed at which the federal government is throwing money at the financial crisis, the average taxpayer, never mind member of Congress, might not be faulted for losing track. CNBC, however, has been paying very close attention and keeping a running tally of actual spending as well as the commitments involved.” -- Financial Crisis Tab Already In The Trillions By |17 Nov 2008 | [Emphasis is mine in all quotes.]

[14] Krugman of the NYT Wonders about Pain? He Should Celebrate the Inflation that will Bankrupt us All.

[15] Buffett Sees Massive Inflation to Handle Staggering Debt. Monday, May 4, 2009 2:34 PM By: Dan Weil

[16] More Americans Doubt Global Warming and Other Forms of EcoNazism

Krugman Explains EcoNazism in the Warmest Terms. Tax Tax Tax

Friedman Bawls about Balls and Can Show Nothing. EcoNazism and Propaganda at Work.

The EcoNazis are Frantic for your Money!

A Translation of the Bailout Plan for Detroit: Bigger Government, Bigger Unions and Cars Designed by EcoNazis,_bigger_unions_and_cars_designed_by_econazis.thtml

Crime is Not a Crime Now if You are an EcoNazi or Leftist Parasite and Act out of Fear.

Flop Ears the EcoNazi Prophet of Doom Raises the Spectre of Disaster from GM Food Production

The EcoNazis and Reality: Klaus Offers to Debate Al Gore.

300 Years of British Inbreeding Brings us Flop Ears the EcoNazi Prophet of Doom

Wednesday, December 12, 2007 1:52 PM

[17] Friedman Predicts the Destruction of the Dollar.  The late, great Milton Friedman in his classic book prophetically revealed how Obama's reckless monetary policies will cause hyperinflation and destroy our nation

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