Nickname: cobbaut2

Review: As every business student should know, great business can falter because they are too heavy in debt (while having good operational side). This is the danger Buffett sees: the D has been growing faster than the economy of the USA plus D also bears interests, thus there is an automatically growth rate built into the D. But there is nothing automatic about growth of industry. You have to work damn hard for it. But the higher your debt and interest payments are, the less money you actually have to improve your economy and make investments, thus slowing down your economy and paying interest to other countries who in turn case use that money to improve their economy. The important factors are: how big is the growth difference between MV and D + nr of years to go before the D will grow with larger amount in absolute numbers then the MV. That is the moment when it will be really hurting the USA. One thing is sure, if your debt grows faster then your economy, that time will come.

Date reviewed: May 24, 2006 9:38 AM

Nickname: cobbaut

Review: Buffett actually referred to the growth rate of the debt (D). If you add 4 triljoen to your market value (MV) and 1 triljoen to your D, then yes there is no problem. But if your D grows at a faster pace then your MV THEN you will be getting a problem in the future. Let's say for example your D grows at 2x the speed of your MV. 4 triljoen MV becomes 8 triljoen MV but D has 2x the growth speed so it goes to 4 triljoen D. The next time around 8 triljoen MV becomes 16 triljoen MV but the 4 triljoen D also becomes 16 triljoen D (2x growth rate). Going for another round we see that 16 triljoen MV becomes 32 triljoen MV and the 16 triljoen D becomes actually 64 triljoen D. Ahum, the USA has worked very very hard but hey, the debt has grown so hard that all the efforts have a net result of being - 32 triljoen D. Just like a person with huge debts can work 2/3 jobs and still get nowhere because the interest payments of his D suck away all his earnings + add new D to the burden.

Date reviewed: May 24, 2006 9:32 AM

Nickname: Tim Armstrong

Review: There is an excellent deconstruction of poor Michael Mandel's reasoning in an excellent article by Mish Shedlock posted on 321gold.com -- after reading it I was better able to see what fragile assumptions (and fundamentals) underlie the U.S. economy. Link: http://www.321gold.com/editorials/shedlock/shedlock052306.html

Date reviewed: May 23, 2006 8:33 PM

Nickname: fxman

Review: Dispencing "We don't need this "voice of prudence" from someone worth more than $40 billion." advice while "a bit tired" is probbaly even less prudent. In the meantime: Economists do it with models, Traders do it Up & Down.

Date reviewed: May 23, 2006 6:10 AM

Nickname: aussie bear

Review: You guys are bullish at the top and bearish at the bottom. I'll take Warren's advice anytime. A tree doesn't grow to the sky and deficits don't matter until they do...

Date reviewed: May 20, 2006 5:38 AM

Nickname: jeanko

Review: Michael Mandel, you are probably right but you miss the point: the U.S. economy will remain strong because it is the most innovative country. And it is the most innovative country because it has the best universities and research centers. Can somebody figure out how many people are involved in the PC industry and services, worldwide, or the Internet? compare with the people involved in the old mainframes companies: IBM, CDC of the fifties!!! This is the process of innovation. It started in the US. Innovation needs money, incentives, good universities, and US has all that!

Date reviewed: May 19, 2006 2:49 PM

Nickname: Yariv

Review: Interesting analysis - still, it is missing the largest piece of the puzzle. Discussing the strength of an economy with numbers only will yield results that either confirm or refute gut feelings - you must address the value of the gut feelings. Fact is, most working class and middle class americans feel strapped and have seen little real value added to their personal net wealth over the past 10 years - the fiber of our economy (people) is weaker. You must find a way to include sentiment in your analysis to make it convincing. Economics is no longer a numbers game.

Date reviewed: May 16, 2006 1:33 PM

Nickname: Big Dave

Review: I'll take Buffett over Mr. Mandel any time. Maybe Mr. Mandel should read the GAO's strategic plan, that indicates how precarious our nation's financial position is. The summary is: We will be a third world country by 2050 if we don't balance our budget very soon. Wake up Mandel and stop killing your country with your horrible advice. Tax cuts, easy household credit, and outrageous defense spending are propping up the economy. Eventually, the interest on the debt will eat us alive. Or force us to make some truly brutal decisions, like healthcare spending caps for the elderly. So wake up, please!

Date reviewed: May 16, 2006 6:00 AM

Nickname: macroman

Review: You don't look at internal debt between Americans, so why are you lumping both outputs together (outputs that we internally consume and outputs that actually generates revenue for us). If we as a country make $7 trillion and domestically consume $6.8billion with only $.2trillion as our net output that we can sell to other countries do we still say that our capital gain is $7 trillion... All this while we are racking up $1trillion per year in debt. I believe we need to put things in their proper perspective when we do our analysis and not compare apples to oranges. The current account will come to haunt us if we don't do anything about it.. and that is just the truth.

Date reviewed: May 15, 2006 11:46 PM

Nickname: andy

Review: Hey, let me know when you all are worth $40 billion, then I'll take your analysis over Buffett's.

Date reviewed: May 15, 2006 9:05 PM