The U.S. trade deficit is a bigger threat to the domestic economy than either the federal budget deficit or consumer debt and could lead to "political turmoil," billionaire investor Warren Buffett warned Tuesday.
"Right now, the rest of the world owns $3 trillion more of us
than we own of them," Buffett told business students and faculty
at the University of Nevada, Reno.
"In my view, it will create political turmoil at some point.
... Pretty soon, I think there will be a big adjustment," he said
Buffett, director of the Omaha, Neb.-based Berkshire Hathaway
Co., was in town for the grand opening of the company's R.C. Willey
Home Furnishings store. He spent two hours on the UNR campus
responding to a variety of questions from an audience.
The U.S. trade deficit soared to a record $665.9 billion in
2004, and Buffett said he expects it to top $700 billion this year.
"That's $2 billion a day. We are like a super rich family that
owns a farm the size of Texas. You sell off a little bit of the
farm and you don't see it," he said.
Fifteen years ago, the U.S. had no trade deficit with China, he
"Now, it's $200 billion. If we don't change the course, the
rest of the world could own $15 trillion of us. That's pretty
substantial. That's equal to the value of all American stock."
"That's the big danger. Our national debt does not bother me.
Our public debt is not at a crazy level," he said.
Buffett said some of the nation's top economists have been
carrying the same message.
Federal Reserve Chairman Alan Greenspan "said back in 2002 that
what was going on then was unsustainable," Buffett said. "It's
doubled roughly from when he said it was unsustainable."
Paul Volcker, Greenspan's predecessor, wrote in an opinion
article for The Washington Post last February that "it's the most
dangerous situation he's seen in his lifetime," Buffett said.
"The truth is, it can go on a long time, but it can't go on
forever," he said.
Meanwhile, Buffett said U.S. companies generally are enjoying
some of their best times ever.
"Profits are at close to record levels. So business in America
is doing very well - better than it's lower-paid workers, by some
margin," he said.
"This is a pro-business United States. If you get a group of
businessmen together they'll complain about regulation and
liability suits, all kinds of things. Some of those things they are
right about and some of it they are just complaining to complain,"
"Business is getting its share. Maybe more than its share."
U.S. corporations seem to be acting more ethically in the wake
of scandals at Enron and elsewhere, but that' primarily due to bad
publicity rather than new federal checks and balances, he said.
"I think corporate American to a fair degree has cleaned up its
act," he said.
"The press has probably contributed very significantly to that.
I think managers are behaving better because of fear rather than
just becoming better managers," he said.
The R.C. Willey store is the first in the Reno area. Along with
two stores in Las Vegas, it makes the company the largest home
furnishing retailer in Nevada.
"What attracts us to Reno is a growing, prosperous market where
nobody has done the job that we knew we could do. Reno is going to
get bigger. People are going to have money to spend," Buffett
"I pushed for Reno and so far it's looking pretty good. We've
had a soft opening for a few months and the early indications are
that our analysis was right," he said.
Nevada's gambling industry appears in good health despite
growing competition, said Buffett, who first visited Reno and Las
Vegas in 1952.
"Every time they'd build a new hotel, people would say there's
500 rooms too many. But it just grows and grows," he said.
"It has been a tremendous business. ... I wouldn't worry about
it as a future business."
Buffett said individual students will have to judge whether a
master's degree in business administration will benefit their
career or if they'd be better off plunging into the real world.
"The one piece of advice I can give you is, do what turns you
on," he said.
"Do something that if you had all the money in the world, you'd
still be doing it. You've got to have a reason to jump out of bed
in the morning."