There are no Americans in Baghdad

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“Please tell me everything is going to be all right”

The dollar is hitting all-time lows. Serious inflation of nearly every commodity has taken place in the past three years. Gold is hitting all time highs. The national debt in the US is higher than it has ever been, and it continues to rise. The markets have not seen this sort of evisceration since 2008. Soon we will find out if Ben Bernanke will fire up the printing press for QE3.

The one thing that could bring us out of this recession (soon to be depression) is something that we do not have – an entire new industry. Something that could double or triple employment rates (e.g., biotechnology companies that can grow you a new non-cirrhotic liver, or launching spaced based solar stations that microwave energy down to Earth and drastically reduce/eliminate our need for carbon fuels).

Stimulus spending will deepen the ditch, devalue the dollar, further inflate commodities, and hasten our demise. It is too late for austerity measures. Even if we liquidated all of the major oil companies, raised taxes on the rich pre-bush era, and stopped ALL federal government spending for a year, we wouldn’t even scratch the surface of our deficit. We need an entire new industry to pull us out of this mess.

So the question remains: In such a turbulent market, and when we are in dire need of investment in new industry, why would Warren Buffett decide to acquire 5 billion dollars of stock in Bank of America?

As was the case with GE and Goldman, Bank of America also gets a strong endorsement from Buffett. He calls the investment a vote of confidence in both BofA and the United States.

A close friend and trading guru suggested to me that perhaps Obama called Buffett and asked him to buy the shares as a favor. Even I wasn’t that pessimistic, until:

“Obama talks to corporate titans on economy”

“Presenting Warren “Archimedes” Buffett’s Amazing 24 Hour Monster Bank of America Due Diligence Session”

So apparently Buffett made this decision in under 24 hours, and after a phone conversation with President Obama. Also, he is planning to hold a fundraiser for Obama in September:

“Buffett to Host Obama Fundraiser in New York”

Now, of course, this evidence is all circumstantial. From this information, we can’t prove whether or not part of Obama’s plan to “restore confidence”(1) in regards the US economy includes asking one of the most influential investors on Wall Street to buy $5 billion in shares in Bank of America.

However, it is apparent that Buffett’s message and the media’s interpretation of it is entirely in the realm of the blue pill: never mind the deficit, never mind the inflation, never mind the lack of new industry, never mind that no other countries are willing to buy our debt anymore — the markets will return back to normal, as they always do.

After all, “This isn’t 2008″.

You’re right, Mr. Buffett. It’s much, much worse.

(1) Stick your heads in the sand

More reading: “A Wolf In Sheep’s Clothing”
“Warren Buffett makes $280m profit on Bank of America stake in just 24 hours” 

Related posts:

  1. Warren Buffett wants to be taxed on this, so you won’t tax him on that.
  2. Framing Deficit Debates
  3. Article I, Section 9, Clause 8: No titles of nobility?
  4. Lies, Charts, and Statistics
  5. Osama bin Laden is dead. Now what?

About claudius

Philosophy, Medicine, Economics, Marketing

6 Responses to There are no Americans in Baghdad

  1. Guy Fox says:

    The dollar is hitting all-time lows. Serious inflation of nearly every commodity has taken place in the past three years. Gold is hitting all time highs. The national debt in the US is higher than it has ever been, and it continues to rise.

    Commodities look like they’re inflating when their prices are measured in dollars because the dollar is depreciating like a rusty Datsun. The debt is higher as a proportion of GDP, but it’s hard to say in real terms. How do you compare PPP’s from 1951 and 2011? Would that mean anything? Stop looking at the dollar values of things, and you’ll see a somewhat different picture. Not only is oil near a 6-month low, the price is about 5% lower in Euros. Check it out.

    QE3 might provide a nominal upwards blip, but it’ll make the picture even more grim on comparative charts. The wheels will spin faster, but the car will actually slow down.

    Obama has no clue how to fix things (and neither does any other honest person). America’s manufacturing is dead, and services need some kind of physical economy underpinning them, unless you can export them, which America could but isn’t doing. Getting Buffett to buy BofA stock is not so crazy because, as long as the system seems to feed on itself and money is the only source of more money, why not use those peculiar attributes to your advantage? If autotrade algorithms and hapless humans act like a herd, why not nudge a leading ram? It might be an unseemly relationship between politics and business, but it’s hardly the worst collusion out there, and Obama’s getting desperate. He got the headlines and pictures presenting him as catching and killing Osama bin Laden (!), and his approval rating is still at the lowest it’s been since he was elected. He’s asking around for ideas, and this one was probably the most doable and least wacky this week, so he took it. Can you blame him?

  2. Dan Dravot says:

    It’s scary that these guys can’t come up with anything better than childish theatrics.

    Also, crony capitalism is a rotten idea. But it’d be a lot worse if the President (not just the NLRB) went the full Chavez, which seems to be his natural inclination. So look on the bright side.

  3. max says:

    Even if we liquidated all of the major oil companies, raised taxes on the rich pre-bush era, and stopped ALL federal government spending for a year, we wouldn’t even scratch the surface of our deficit.

    You’re confusing “deficit” with “debt”. The deficit is what we spend beyond what we collect, and that amount is added to the debt. The 2011 federal deficit is $1.3 trillion, and the national debt is $14.6 trillion.

    Agreed that the deficit is too high, but there are easy cuts to be had in military spending (12% of the deficit), as well as easy tax revenue (25% of the deficit) to be collected (11% of the deficit).

    This “crisis” is the same old crisis we’ve been having since time began: everybody wants everything, but nobody wants to pay. Everything else is bullshit.

  4. max says:

    However, it is apparent that Buffett’s message and the media’s interpretation of it is entirely in the realm of the blue pill: never mind the deficit, never mind the inflation, never mind the lack of new industry, never mind that no other countries are willing to buy our debt anymore — the markets will return back to normal, as they always do.

    They’re all blue pills. The deficit is a deliberate crisis created to force drastic cuts in social services so the rich can pay less taxes. Inflation, what inflation? (Only in commodities which is caused by pure speculation. A true inflation would include wage increases.) New industry? Since when is it the government’s job to create new industry? Foreign buyers of our debt? You are correct, only in that the Fed has been buying to keep interest rates low, thus pricing out foreign buyers. This is not the same as foreign buyers not being “willing” to buy our debt.

    Looks like you’re just exchanging one blue pill for another.

  5. geerussell says:

    “So the question remains: In such a turbulent market, and when we are in dire need of investment in new industry, why would Warren Buffett decide to acquire 5 billion dollars of stock in Bank of America?”

    It’s not altruism, this is a sweetheart of a deal that will make a ton of money for him. A re-run of 2008 when he made a bundle with a similar stake in Goldman Sachs:

    http://www.businessinsider.com/warren-buffett-made-37-billion-from-his-5-billion-investment-in-goldman-sachs-2011-3

    There aren’t a lot of places you can park $5 billion dollars right now with a rate of return as good as he’s getting on this stock, this combined with the implicit government bailout backstopping BofA makes it a no-brainer for Buffett who gets a dividend on the stock he purchased now and options to purchase more in the future at the current price.

    “However, it is apparent that Buffett’s message and the media’s interpretation of it is entirely in the realm of the blue pill”

    This is basically true. Buffett is a confidence fairy. When he invests in you, the markets see that as a good housekeeping seal of approval and you get a new lease on life no matter how bad the reality might be.

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