Buffett: U.S. Could Become Banana Republic

Wednesday, August 19, 2009 By: Julie Crawshaw

Warren Buffett says the growing mountain of U.S. debt could turn the country into a banana republic.

“Unchecked carbon emissions will likely cause icebergs to melt,” Buffett writes in The New York Times.

“Unchecked greenback emissions will certainly cause the purchasing power of currency to melt.”

The U.S. economy appears to be on a slow path to recovery, Buffett notes, but “enormous dosages of monetary medicine continue to be administered,” creating an annual deficit more than twice any since 1920 aside from war-impacted years of 1942-1946.

Most of the effects of this are still invisible, but “their threat may be as ominous as that posed by the financial crisis itself.”

Congress, Buffett says, must end the rise in the debt-to-GDP ratio and bring U.S. growth in obligations back in line with U.S. growth in resources.

Even if much of this debt were covered by foreign investors and by Americans saving substantially more than they have done in years, Buffett estimates Treasury would have to find $900 billion to finance the remainder of the debt it is issuing.

“We don’t want our country to evolve into the banana-republic economy described by Keynes,” he says.

China reduced its holdings of U.S. government debt by the largest margin in nearly nine years in June, cutting its holdings by nearly 3 percent, according to data from the Department of Treasury.

In 2008, the Chinese increased their holdings in U.S. debt by 52 percent over 12 months. © 2009 Newsmax. All rights reserved

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