Charlie Munger..It's Over
 

This is the guy who did the heavy lifting for Buffet...while Buffet played Bridge...



http://moneynews.com/Headline/munger-buffett-economy-debt/2010/02/22/id/350529?s=al&promo_code=97C7-1


Buffett's Partner: 'It's Over' for U.S. Economy
Monday, 22 Feb 2010 11:42 AM Article Font Size
By: Dan Weil

Charlie Munger, Warren Buffett’s longtime business partner in Berkshire Hathaway, warns in a new column that the U.S. economic empire is crumbling before our eyes, thanks to federal debt and poor planning.

In an article penned for Slate.com, Munger uses the form of a parable to explain how Wall Street’s love affair with gambling has destroyed America’s Main Street.

The article leads with this headline: “Basically, It’s Over.”

The Berkshire Hathaway vice chairman describes the economic history of Basicland, which happens to match U.S. history.

Early in its history, debt is unknown except for home mortgages and some consumer loans, and people live within their means. Speculation is discouraged, and commodities markets are small and tightly regulated.

Under this rational system, economic growth skips merrily along at a steady 3 percent, Munger explains.

Taxes are limited and pay for only “essential services” like fire protection, courts, and defense. Most taxes are collected on imports, and government spending matches that tax income. Debt via government bonds is limited.

Then things take a turn for the worse.

“The extreme prosperity of Basicland had created a peculiar outcome: As their affluence and leisure time grew, Basicland's citizens more and more whiled away their time in the excitement of casino gambling,” Munger writes.

Financial services soon grow to account for too big a portion of the economy, Munger says.

“The winnings of the casinos eventually amounted to 25 percent of Basicland's GDP, while 22 percent of all employee earnings in Basicland were paid to persons employed by the casinos, many of whom were engineers needed elsewhere.”

Then, a shock: Imported energy costs rise, and low-cost labor competition from abroad appears, Munger writes.

“Suddenly Basicland had to come up with 30 percent of its GDP every year, in foreign currency, to pay its creditors,” Munger writes.

The U.S. deficit — just the gap between spending and income in one year — is projected to hit $1.6 trillion in 2010. Total debt is project to exceed 100 percent of GDP starting in 2011.

In the parable, Munger strongly suggests that the United States take seriously the campaign of Reagan-era Fed Chairman Paul Volcker, who wants the big banks to cease pretending to be banks if they expect the freedom to trade securities on the side.

“He suggested that Basicland should strongly discourage casino gambling, partly through a complete ban on the trading in financial derivatives, and it should encourage former casino employees — and former casino patrons — to produce and sell items that foreigners were willing to buy,” Munger writes.

As the parable ends, none of the politicians listen, and Basicland turned into “Sorrowland,” Munger concludes.

We must carefully listen to Charlie Munger and people like him.
Why?
He understands the production of wealth by companies and nations producing products and services.
We can't afford to let our skilled middle class manufacturing people be thrown into continous unemployment to feed the god of free trade.
The Chinese and other low cost nations are laughing all the way to the bank;
while our children face an uncertain future.

Your childrens future is NOT uncertain...their future is BLEAK...

America produces 21% of the worlds goods...what has killed the Middle Class is that those jobs are now AUTOMATED...the low skilled mfg jobs that didn't require an education are now largely GONE.

DON"T YOU GET IT..the American Middle Class is NEVER COMING BACK...Americas end of WW2 Prosperity Bubble is NOW OVER....the conditions that created the hugh American Middle Class NO LONGER EXIST...There is competition in the world..

So when you decide that you will work for $5 a day you will get work once again. Just like it was in 1910...

Guess it's a good thing you've invested in that spoon collection, huh. Now you'll be able to barter for essential goods in the forthcoming collapse.

That is the going rate in Mexico today. Why not do it here and get all the bennies?

Automation puts PEOPLE out of work. I refuse to use those automated lines in stores, and i avoid using an ATM as much as possible.

I would rather wait in a line to help out my fellow American people by helping to maintain the need for cashiers and tellers.

Don't you find it ironic that the wealth amassed by Munger/Buffet/BH et al was as a result of the casino mentality especially in light of the fact that BH often had a stacked deck or were allowed side "bets" to cover?

No U will just be my slave...

After WWII was done with, the Allies got together to rebuild Europe and Japan.

We need to look at how to rebuild America. The U.S paid ton's of Millions of greenbacks into the Marshal plan and it's Sister plan for Japan.

America Financed the Factories of Europe and Japan.

NOW is the time that we look into not sending one thin dime out to another country. We need to stop being a wellfare state and create workfare.

I grew up in the '80s High schools had Metal Shop, Wood Shop, Print Shop etc.

We trained our youth that they could build something. We no longer do this and it's breaking America.




The Marshall Plan (from its enactment, officially the European Recovery Program, ERP) was the primary program, 1948–51, of the United States for rebuilding and creating a stronger economic foundation for the countries of Western Europe, and repelling the threat of internal communism after World War II. The initiative was named for Secretary of State George Marshall and was largely the creation of State Department officials, especially William L. Clayton and George F. Kennan. George Marshall spoke of the administration's desire to help European recovery in his address at Harvard University in June 1947.[1]

The reconstruction plan, developed at a meeting of the participating European states, was established on June 5, 1947. It offered the same aid to the USSR and its allies, but they did not accept it.[2][3] The plan was in operation for four years beginning in April 1948. During that period some US$13 billion in economic and technical assistance were given to help the recovery of the European countries that had joined in the Organization for European Economic Co-operation. This $13 billion was in the context of a U.S. GDP of $258 billion in 1948, and was on top of $12 billion in American aid to Europe between the end of the war and the start of the Plan.[4]

The ERP addressed each of the obstacles to postwar recovery. The plan looked to the future, and did not focus on the destruction caused by the war. Much more important were efforts to modernize European industrial and business practices using high-efficiency American models, reduce artificial trade barriers, and instill a sense of hope and self-reliance.[5]

By 1952 as the funding ended, the economy of every participant state had surpassed pre-war levels; for all Marshall plan recipients, output in 1951 was 35% higher than in 1938.[6] Over the next two decades, Western Europe enjoyed unprecedented growth and prosperity, but economists are not sure what proportion was due directly to the ERP, what proportion indirectly, and how much would have happened without it. The Marshall Plan was one of the first elements of European integration, as it erased trade barriers and set up institutions to coordinate the economy on a continental level—that is, it stimulated the total political reconstruction of western Europe.[7]

Belgian economic historian Herman Van der Wee concludes the Marshall Plan was a "great success":

"It gave a new impetus to reconstruction in Western Europe and made a decisive contribution to the renewal of the transport system, the modernization of industrial and agricultural equipment, the resumption of normal production, the raising of productivity, and the facilitating of intra-European trade

What kills me is how obvious it is. Its plain as day. The ship is sinking, and the passengers and crew are arguing about how to arrange the deck furniture. I simply can't understand it.

I am not arguing about anything...I am telling you the ship is sinking and there really is not a dam thing you can do about. Largely because you have a govt that may utter the words but lives in the rarefied air of DC denial.

The American people themselves do not want to hear how painful the cure is going to be for the malady that ills their nation. They can not utter to hear the words "cut" their favorite entitlement. As i have said everyday that goes by where the cure of higher taxes and fewer govt services is not implemented makes the cure that much more deep and painful along with unpalatable. Till one day the cure is going to be no worse then just continuing on blightly as if nothing dire were going to happen. The only question I have is have we reached that stage of decay yet and can the ship still be save?

Yeah, but for those who see the obvious, are we prepared for massive devaluation of our currency? Do we delay the purchase of the Ducati, choosing to stock up the bunker and attain full self-sufficiency?

I could divert funds to a solar PV system, install a well, and dice up an acre of the lawn, cultivate and plant with food crops, but I don't. Is it an innate desire to be optimistic? An unwillingness to accept the possibility of a dire future?

dueller, right on. Buffett was railing on about financial weapons of mass destruction. That pig went even deeper into Wells Fargo when the market cratered, banking on the bailouts. Now, we have even greater concentration amongst financial institutions. Derivatives are still alive and will rise again. WB sold out to make a buck. Buffett cares not what I think, but he lost a good measure of my respect.

But OHHHH you have missed the biggest Buffet move on you...you have missed his move into the coming Greening of the economy....his self proclaimed being "Bullish On America" his purchase of the Burlington Northern RR....RR freight hauling is the most economical and therefore Green way to move goods per mile. When the cost of Diesel skyrockets his will be the only economical and therefore sanctioned method of transportation of goods.

Very good point Dueller. BH has seen its value increase untold times by way of other countries and peoples. I would like to see the companies they have invested in the last 20 years. I do think that Warren Buffet is a genious, the sum of his wealth is outside the USA.

I don't think that could be further from the truth...

I think this list only includes wholly owned subs:
LINKS TO BERKSHIRE HATHAWAY SUB. COMPANIES

Several investments have also been made in publicly traded companies, like Coca-Cola & Gillette. The vast majority of BRK's investments are in American firms, and teh vast majority of Warren Buffet's wealth is in BRK.

not at all...

Berhshire Hathaway has amassed it's wealth through long-term direct investments in the equity or debt of (primarily) brick & mortar firms.

The referenced article is railing against the use of derivative contracts - contracts whose value is derived from real assets. Direct investment and lending are important elements of a healthy capital market system. Derivatives can probably be done without.

I'm not quite sure what the "stacked deck" bit is about...

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Man, are you inside my head?

BTW - I have friends in and around So Cal - successful guys, who have purchased property as you describe. 1 w/ 5 acres, well, solar. Another w/ 10 acres east of SD.

The actual Munger article is here
A parable about how one nation came to financial ruin. - By Charles Munger - Slate Magazine

I've read it, and find some aspects rather puzzling. The fictional country "Basicland" is intended to represent the US. Certain apparently key aspects of Basicland's economy are completely different from the US economy. I mean "key" and I mean "completely".

Can you guys, those who want to actually read Munger's article anyway, spot what aspects I am referring to? Post your catches, we'll make a list.

The next step, will be to figure out the significance of those glaring differences. I doubt Munger included them out of ignorance, or intellectual dishonesty, so what point is he trying to make?

Boo.

I really hope this pessimism is just that, but if it isn't, you can bet Bill Clinton's stack of Playboys I have a plan. Enlarge the pond (make it deeper and at least an acre in area and stock it with yummy fishes), well, solar panels everywhere, machine gun turrets, brothel, etc. Dunno what will replace the peepeeOtee beebeeS, though.SmileWavy