Warren Buffett, the Ultimate Bubble, and American Decline

America is in the hands of con men.  Would that she were to return to the innovative days of laisser faire when the precursors of today's economic mountebanks resided in the populist hinterland and the fringe of the Whig and Republican Parties.  The Bush and Obama administrations have followed the failed ideologies of Friedman and Keynes as the American economy has faltered.  (A good discussion of why monetarist and Keynesian economists get it wrong is Henry Hazlitt's Economics in One Lesson.)  

In a 2003 article in Fortune  Warren Buffett, Oracle of Federal Reserve Bank Counterfeit, makes these claims:

 ...imagine that the Japanese both want to get out of their U.S. real estate and entirely away from dollar assets. They can’t accomplish that by selling their real estate to Americans, because they will get paid in dollars. And if they sell their real estate to non-Americans—say, the French, for euros—the property will remain in the hands of foreigners. With either kind of sale, the dollar assets held by the rest of the world will not (except for any concurrent shift in the price of the dollar) have changed. The bottom line is that other nations simply can’t disinvest in the U.S. unless they, as a universe, buy more goods and services from us than we buy from them. That state of affairs would be called an American trade surplus, and we don’t have one.

Mr. Buffett and Fortune mal-educate the public.  The foreigner who sells American real estate can exchange dollars for yen or yuan at his bank.  Fortune and Buffett seem not to have heard of foreign exchange windows. All currencies are traded.  Of course, if many foreigners wish to get out the dollar there will a great dollar crash.  This will occur, for the dollar, not gold, is the world's ultimate bubble.  

As well, foreigners can get out of dollars by buying commodities with dollars and then selling them for foreign currencies. For example, if a Japanese investor is holding dollars, he can use the dollars to buy gold or wheat from an American and then sell the commodity in Japan. That would leave dollars back in America and the Japanese investor with yen.  As well, he can purchase dollars from Americans who prefer to hold yen, or use dollars to purchase yen-denominated assets from Americans.  Side payments make a wide range of ways to ditch dollars possible.

The price of gold has escalated as both Americans and foreigners have begun to prefer holding gold to dollars. Foreign central banks increasingly hold gold instead of dollars.  The dollar has fallen.

Foreign central banks can end the dollar's reserve currency status and sell their treasury bonds back to Americans, then exchange the dollars they have received for their home or another currency.  Doing so would cause the dollar to fall as demand for dollars drops and demand for other currencies rises.  If many countries do so, the value of the dollar will fall precipitously.  That Mr. Buffett and Fortune claim that such a situation is an impossibility reflects the ruling class's fantasy that the current monetary arrangement, which is a dollar bubble brought about through central banks' and governments' planning in Wall Street's, corporations' and government's interests, can continue indefinitely.

Eventually, there will be a run on the dollar, and Americans will suffer.  Gold may have its ups and downs, but the instability of the American monetary system will remain until the system is replaced.


A dollar crash should have occurred long ago. All foreign trade must be two way.  If foreigners are selling merchandise here for dollars, then we must sell merchandise there for yen or yuan.  If we don't then demand for the dollar falls and we are forced to stop buying Japanese or Chinese merchandise because it has become expensive. Plants return from foreign countries because imports become expensive.  Inflation would make Americans poorer.  This has not occurred because foreigners hold dollars and dollar-denominated treasury bonds, propping up the dollar. This has caused excessive overseas investment.  The Fed has harmed working Americans while it has subsidized Wall Street, Warren Buffett, and George Soros.


Rather than think logically, Mr. Buffett, America's most talented financier, and Fortune, America's leading business publication, fantasize.  The notion that the dollar cannot be sold deflects attention from the instability of the American economy.  Fantasy is characteristic of participants in bubbles.  It is not impossible for foreigners to sell dollars, and purchase of manufactured goods is not the only form of trade.  As dollar demand for other currencies escalates, the dollar declines.

The flip side of Mr. Buffett's and Fortune's delusional claim that dollar sales are an impossibility will be the end of the dollar bubble--a dollar crash.  Gold and silver, anathema to Fortune, Mr. Buffett, and his Wall Street peers, will skyrocket in value.  Wall Street's victimization of the average American, accomplished by Americans' voting their victimizers' servants into office, will have been complete.

Activity Report

I apologize to loyal readers who have wondered where I've been.  I am engaged in some academic research that is absorbing all of my waking time. I used to be in such a state and am again. The reason is in part that my employer, Brooklyn College, has decided to transform a once-miniscule economics department into a business school.  They have hired a dean, Willie Hopkins, from Cal State Chico and Dean Hopkins is focused on winning AACSB International accreditation, which is the best accreditation.  Part of accreditation is research output.  But, in addition, my Sabbatical the year before last stimulated a new interested in business ethics and I am working on a philosophical and historical project that will take several years to complete.  During this time I have also been writing a monthly column for the AICPA Career Insider and writing a monthly column for Mike Marnell's Lincoln Eagle. I have also been working on additional research projects.  I am developing two courses for the CUNY Free Institutions program and have a three course teaching load. Therefore, I have a full plate. I intend to keep blogging but have been totally engrossed in studying the history of positivism and related subjects. 

Town Special Reserve Accounts--a riddle, wrapped in a mystery, inside an enigma

 

Via E-mail and US Mail

PO Box 130

West Shokan, NY 12494

October 1, 2011

Supervisor Berndt Leifeld

PO Box 180
West Shokan, NY 12494
845-657-8118
FAX 845-657-6117

Dear Supervisor Leifeld:

At the recent Town of Olive budget workshop several citizens raised the question of balances in special reserve funds being used for emergencies such as the recent tropical storm devastation.  Your response was that money in reserve funds cannot be used for purposes other than those designated in the accounts.  Your claim is false because special reserve accounts can be reduced or dissolved.  I located a policy statement of the New York State Comptroller’s Office located  at: http://www.osc.state.ny.us/localgov/pubs/lgmg/reservefunds.pdf .   The report states:

When conditions warrant (subject to legal requirements), the board should reduce reserve funds to reasonable levels or liquidate and discontinue a reserve fund that is no longer needed or whose purpose has been achieved.

The report implies that different reserve funds are subject to different methods of dissolution or reduction.  As well, the report states:

Because of the complexity of some of the legal requirements relating to the establishment, funding, expenditure, and dissolution of reserve funds, we encourage local officials to consult with their municipal attorney.

I assume that you have done so and can produce letters to and from lawyers as to the statuses of the various special reserve funds.  As well:

(R)eserve fund(s) should be established with a clear intent or plan in mind regarding the future purpose, use and, when appropriate, replenishment of funds from the reserve. Reserve funds should not be merely a “parking lot” for excess cash or fund balance.

The report also gives some guidance as to prudent oversight of reserve funds:

Reserve funds can be excellent financial planning tools when combined with a realistic analysis of future financial needs and obligations. All too often, however, reserve funds are established and substantial cash is accumulated without due diligence in monitoring the reasonableness of reserve fund balances. To help ensure that reserve funds are being properly established for an authorized and needed purpose, and the balances in existing reserve funds are not accumulated excessively or unnecessarily, governing boards should answer the following questions:

• ·         Has legal counsel provided guidance on the authority to establish new reserve funds?

• ·         Has the financial need or purpose served by the reserve been identified?

• ·         Does the reserve fit within or complement the long range financial or capital plans of our locality?

• ·         Has a written reserve fund plan or policy been developed?

• ·         What events and obligations is the board planning for?

• ·         Is cash being accumulated for the purchase of a major piece of equipment or to help finance other major capital outlays?

• ·         Is cash being sequestered to help mitigate the impact of other large, nonrecurring expenditures?

• ·         Are there risks that need to be protected against?

• ·         Does the board’s policy address replenishing depleted reserve balances, as appropriate?

• ·         Is the board provided with periodic financial reports on reserve fund activity?

• ·         Are reserve balances at an appropriate level?

• ·         Has the board reviewed all reserve funds currently established and determined if the balances are necessary and reasonable?

• ·         Is there a limit on the dollar amount to be accumulated?

• ·         Is the reserve serving the purpose for which it was established?

• ·         Are the best interests of the taxpayers being met?

• ·         Any governing board that is planning to establish and finance reserve funds on a regular basis should develop a written policy that communicates to taxpayers why the money is being set aside, the board’s financial objectives for the reserves, optimal funding levels, and conditions under which the assets will be utilized. Boards should also periodically assess the reasonableness of the amounts accumulated in their reserves.

• ·         When conditions warrant (subject to legal requirements), the board should reduce reserve funds to reasonable levels or liquidate and discontinue a reserve fund that is no longer needed or whose purpose has been achieved.

The last three bullets address questions that citizens asked you and that you failed to answer.  Surely you have addressed all of the concerns listed in the above bullets, and I now request you to apprize the public of your deliberations, due diligence, and thoughtful planning at the next town meeting.  Alternatively, I can send an additional freedom of information law requesting documentation of your compliance with the Comptroller’s guidelines and take the information to the media.  As a local gadfly, I anticipate your response with interest.

Sincerely,

Mitchell Langbert, Ph.D.

Freedom of Information Request Regarding Town of Olive's Agenda 21- and Section 8 Housing-Driven Comprehensive Plan

Via E-mail and US Mail

Freedom of Information Law Request

Ms. Sylvia Rozzelle

Town Clerk

Town of Olive

PO Box 96
West Shokan, NY 12494

October 1, 2011

Dear Town Clerk Rozzelle and Supervisor Leifeld:

Under the provisions of the New York Freedom of Information Law, Article 6 of the Public Officers Law, I hereby request records or portions thereof, or to inspect such records if copying costs exceed $50, pertaining to (or containing) the following:

-All correspondence, meeting minutes and invoices that mention the proposed Comprehensive Plan

-All correspondence, meeting minutes and invoices that mention the Rudikoff consulting firm, including, but not limited to, any invoices received from the Rudikoff firm immediately following the August 8 meeting.

-All correspondence concerning the legality of transfer of development rights mentioned in the draft comprehensive plan

-All correspondence and minutes of any meetings with with Rupco or any of its directors or officers

-Regarding potential paid work for the Town of Olive, all correspondence with Mr. ...  and minutes of any meetings with him

-All correspondence with Tongore Pines Housing Development Co. and minutes of any meetings with any of its directors or officers

-Minutes of any meetings held in the past five years and any correspondence concerning establishment of special revenue funds or any other encumbrance of specific or special purpose funds

If there are any fees for copying the records requested,  please supply the records without informing me if the fees are not in excess of $50. If they are above $50 please advise me when I can inspect the records in person.

As you know, the Freedom of Information Law requires that an agency respond to a request within five business days of receipt of a request. Therefore, I would appreciate a response as soon as possible and look forward to hearing from you shortly. If for any reason any portion of my request is denied, please inform me of the reasons for the denial in writing and provide the name and address of the person or body to whom an appeal should be directed.
        

Sincerely,

Mitchell Langbert, Ph.D.

PO Box 130

West Shokan, NY 12494          

845-657-8460