WARREN BUFFETT predicts further gloom for the currency that made his fortune. The financial press is beside itself with adoring agreement, savoring the Omaha tycoon's corn-fed metaphors and apparently expecting the U.S. dollar to imitate - I don't know - the Indonesian rupiah any day now.
The dollar's recent decline against the euro, yen and other currencies is "likely to continue," he warns, "by a degree that could prove unsettling to financial markets."
But Buffett, head of Berkshire Hathaway and the world's second-richest person, is wrong.
His worry is based almost entirely on the U.S. trade deficit, which is a measure of national saving. Because the United States imports much more than it exports, the country must lure some $12 billion a week in foreign capital to help pay for foreign goods and services. At $600 billion a year, that's 5 percent of the U.S. economy - double the portion of a decade ago.
Sounds scary, and, other things being typical, it would be. Economic theory and history suggest that rising trade deficits depress the currency of an over-consuming, savings-deficient country as the world grows wary of financing the profligate.
"Our spendthrift behavior won't ... be tolerated indefinitely," Buffett warns in Berkshire's annual report to shareholders.
But other things are not typical for the dollar, and several parts of the dollar equation are more important than the trade deficits obsessing Buffett.
First, the dollar's sponsor is the planet's sole military superpower. Political oblivion is one of history's top threats to currencies. Tried cashing any pre-Communist China bonds lately? But the dollar and the Treasury securities issued by its government are bulletproof.
The United States also has the biggest, best and most flexible economy.
This country created the bulk of global economic growth the past decade; American consumers and the money they ship abroad have been the only things preventing world recession. This compels China, Japan and other nations to reinvest profits here - supporting the dollar and bridging our savings gap - to make sure Americans keep buying their products.
Huge pools of global savings and unprecedented ease in shifting capital between hemispheres allow this to happen.
Trade-deficit worrywarts remember when borders impeded capital flow and savings-poor countries might not easily get a mortgage or equity investment from neighbors.
But it's a wide-open world now. China, Japan and other nations hold billions in savings that Americans can tap with a few keystrokes. Maryland doesn't worry about its trade deficit with California; maybe people should fret less about the U.S. deficit with China.
At the same time, the growth and dynamism of the U.S. economy give foreign investors extra incentive to move money here.
Among other categories, the United States excels in productivity growth - output per worker - the key to rising corporate profits as well as better worker incomes. Thanks to productivity, American stock markets have been the wonder of the world, and there's no reason for foreign investors to believe they won't continue to be.
It's a sensible setup for everyone - especially the United States. We get foreign capital on extremely favorable terms and invest it in productive ways, covering debt service and other capital costs and simultaneously fueling national growth - and Buffett's complaining?
Disrespecting the dollar requires an alternative, a big-country currency that is plausibly a better store of value and vehicle for future gains. But there isn't any.
Not the yen. Japan has skated in and out of recession for years and faces huge population and productivity challenges. Not the Chinese renminbi, which doesn't trade freely and whose economy is heading for a crash when its still-communist inefficiencies eventually hit the fan.
And it's not the euro, either. Choking regulation, a dozen squabbling governments and the same population and productivity issues as in Japan should keep Europe behind the United States for years.
European unemployment is 8.8 percent. Europe's economy grew 1.6 percent last year and may be slowing. Europe's population is growing at less than half the rate of the United States'.
U.S. unemployment, by contrast, is 5.4 percent. The U.S. economy grew 4.4 percent last year.
People worry the U.S. budget deficit will also hurt the dollar if foreign lenders fear deficit-fueled inflation. But deficits are just as big a problem in Europe and twice as big in Japan. And we have a better central bank.
Where would you put your money?
