Warren Buffett: The United States is No Europe
by Jason Jenkins, Investment U Research
Monday, November 28, 2011
The special debt-reduction committee created by Congress this past August failed to do its job. It could not reach an agreement to shave $1.2 trillion off the U.S. debt.
So, just as the markets have predicted for the last few weeks, we have partisan dysfunction with no relief likely until after the 2012 election year. This sets the stage for across-the-board automatic spending cuts.
There was belief that after the Supercommittee admitted failure Congress would legislate themselves out of sequestration, which would have allowed for no automatic cuts.
However, President Obama blamed Republicans, saying in remarks at the White House they “refused to listen to the voices of reason and compromise.” The President, most importantly, went on to say that he would veto any Congressional move to avoid those automatic spending cuts that are supposed to start in 2013.
Other Repercussions
And at the same time, the impasse creates ambiguity as to whether Congress will vote to extend a temporary payroll tax cut or the extension of unemployment benefits that many economists believe are needed to keeping the United States growing. Each will expire at year’s end.
Both sides of the aisle know in the long run that the damage from the uncertainty is detrimental to recovery next year and may even spill over into 2013.
Wow! How long will this go on? Ever since the debt ceiling debacle, we have seen nothing but a childish gridlock in Washington. There’s a divide that’s so bad between the parties that it’s affecting the psyche of many Americans like never before. But I’m here to bring good news – at least we’re not Europe!
We’re Bad, They’re Worse
If you don’t take my word for it, you may want to listen to the “Oracle of Omaha.” The crisis in the Eurozone has exposed the flaws of the 17-member currency union, and its leaders will need to take urgent action if they want the euro to survive, Warren Buffett told CNBC in an on-air interview last Monday.
“The system as presently designed has revealed a major flaw. And that flaw won’t be corrected just by words. Europe will either have to come closer together or there will have to be some other rearrangement because this system is not working,” Buffett said in the interview.
Asked whether the union would survive this crisis, Buffett said: “That’s in doubt now.”
What was truly striking was his statement that he did not see many parallels between the crisis in the Eurozone and concerns over debt in the United States.
The Major Difference
Every member of the Eurozone surrendered their right to issue bonds in their own currency. That alone shows why these two situations must be viewed separately.
Now don’t take this the wrong way. I am by no means advocating that we print money in the attempt to get out of this or that the U.S. debt issue is not that critical. But, what I am stating is that we have a structure that can help us out along the way and keep our equity markets on a lot stronger footing than Europe’s.
Investors know this and will be looking for the only true safe haven these days – the U.S. dollar – while the developed geopolitical world tries to get its act together.
Good investing,
Jason Jenkins
Article by Investment U
