I've been doing a lot of reading lately. When am I not? Generally, I reserve digital signage-specific opinion to this blog, but I have read a few things lately, including an article in the NY Times by Warren Buffett, which have caused me to think and which I feel are worthy of some reiteration. 

Buffet makes an analogous comparison of carbon emissions to "greenback" emissions. It's the "small equivocations in one make large deviations in the other" argument:

In nature, every action has consequences, a phenomenon called the butterfly effect. These consequences, moreover, are not necessarily proportional. For example, doubling the carbon dioxide we belch into the atmosphere may far more than double the subsequent problems for society. Realizing this, the world properly worries about greenhouse emissions.

The butterfly effect reaches into the financial world as well. Here, the United States is spewing a potentially damaging substance into our economy — greenback emissions.

To be sure, we’ve been doing this for a reason I resoundingly applaud. Last fall, our financial system stood on the brink of a collapse that threatened a depression. The crisis required our government to display wisdom, courage and decisiveness. Fortunately, the Federal Reserve and key economic officials in both the Bush and Obama administrations responded more than ably to the need.

The "Oracle of Omaha" went on to speak of current and former gov't efforts and their effect at changing the deficit spending in Washington--a fact that remains sordidly sickening, regardless of the specific political party in control of any of the gov't branches. Buffett comments on a statement made by Keynes regarding the efforts of elected officials to remain in office without decreasing expenditures and increasing taxes: 

Legislators will correctly perceive that either raising taxes or cutting expenditures will threaten their re-election. To avoid this fate, they can opt for high rates of inflation, which never require a recorded vote and cannot be attributed to a specific action that any elected official takes. In fact, John Maynard Keynes long ago laid out a road map for political survival amid an economic disaster of just this sort: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.... The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

I want to emphasize that there is nothing evil or destructive in an increase in debt that is proportional to an increase in income or assets. As the resources of individuals, corporations and countries grow, each can handle more debt. The United States remains by far the most prosperous country on earth, and its debt-carrying capacity will grow in the future just as it has in the past.

But it was a wise man who said, “All I want to know is where I’m going to die so I’ll never go there.” We don’t want our country to evolve into the banana-republic economy described by Keynes.

Our immediate problem is to get our country back on its feet and flourishing — “whatever it takes” still makes sense. Once recovery is gained, however, Congress must end the rise in the debt-to-G.D.P. ratio and keep our growth in obligations in line with our growth in resources.

Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar’s destiny lies with Congress.

Does the fundamental principle of economics--that is, take care of yourself and we're all better off--apply to the leadership in Congress? I submit it does not. But, which one of our representatives will have the courage to do what is necessary to get the country back on its feet? And, once they get the ball rolling will their constituents have the foresight to reelect an official who is not making decisions at the expense of inflation. Sadly, I don't see an eventual reversal, only a continuation of the same. Again, this is not a party-affiliated problem, it's a constituent discipline issue: we lack the discipline to sacrifice the now for the future of our children and grandchildren. We know it, and our elected officials know it. The train wreck is coming, brace yourself.  

It is highly unlikely Congress has the leadership and/or willpower to reign in the massive deficit spending. Such a policy would require active and fearless leaders as well as supportive constituents who understand that a little sacrifice now is necessary for future stability. With the unmet need of decisive leaders, inflation is--according to Keynes--all but certain.  Hence, the trick is to invest in assets which will perform equal to or at a greater rate than the of inflation. In times of inflation, fixed assets are generally the exceptional choice.  Otherwise, wealth erodes as hyperinflation gains its footing.

Bold steps will be required to ensure the sustainable viability of our economy, else we'll become the "banana republic" Buffett speaks of: a sordid version of our former self, where the dollar is equal in value to the ruble.

What do you think?