Buffett’s Warning

Buffett’s talking again. But this time, it’s not about spiraling U.S. debt or the possible collapse of the value of the U.S. dollar. This time, Buffett is warning us about the U.S. trade deficit.

Here’s what Buffett said last week to students at the University of Nevada in Reno:

“Right now, the rest of the world owns $3 trillion more of us than we own of them… In my view, it will create political turmoil at some point… Pretty soon, I think there will be a big adjustment.”

The U.S. trade deficit was $660 billion in the first 11 months of 2005. Some estimates put the total U.S. trade deficit for 2005 at $700 billion. Buffett warned that “if we don’t change the course, the rest of the world could own $15 trillion of us. That’s equal to the value of all American stock.”

While Buffett didn’t offer specifics on what the “big adjustment” is going to be, he did say the ballooning U.S. trade deficit is a bigger concern for him than the national or public debt is.

While some economists have long warned about the negative impact of the fast-rising deficit, a market watcher like me must ask, is the big adjustment Buffett is talking about the devaluation of the U.S. dollar? It’s public knowledge that Buffett is betting big on the decline of the value of the U.S. dollar against other world currencies.

Obviously, one way for a country to get rid of its trade deficit is to lower the value of its currency against the currencies of the countries holding the trade surplus. For the past three years, I’ve believed that this is the best solution for America. And while Buffett isn’t exactly coming out and saying this, I’m reading between the lines and coming to the conclusion: a much cheaper U.S. dollar ahead.

NEWSFLASH: The U.S. has spent $250 billion so far on the Afghanistan and Iraq wars. Congress will soon be asked for another $50 billion to $100 billion more for the fight. Is Buffett sure the trade deficit is a bigger concern than the national debt? Both could spell trouble for the U.S. dollar, but good news for gold bullion investors!