Basically, It's Over

Almost all of you have heard of Warren Buffet. He is the most successful investor of our generation and lives in Omaha, NE in a modest home.

But probably almost none of you know the name, Charlie Munger, who happens to be Buffet's long time business partner.

This is what Charlie has been saying....and I must admit he sounds an awful lot like what we have been saying.

Money News
Charlie Munger, Warren Buffett’s longtime business partner in Berkshire Hathaway, warns in a new column that the U.S. economic empire is crumbling before our eyes, thanks to federal debt and poor planning.

In an article penned for Slate.com, Munger uses the form of a parable to explain how Wall Street’s love affair with gambling has destroyed America’s Main Street.
The article leads with this headline: “Basically, It’s Over.”The Berkshire Hathaway vice chairman describes the economic history of Basicland, which happens to match U.S. history.

Early in its history, debt is unknown except for home mortgages and some consumer loans, and people live within their means. Speculation is discouraged, and commodities markets are small and tightly regulated.

Under this rational system, economic growth skips merrily along at a steady 3 percent, Munger explains.

Taxes are limited and pay for only “essential services” like fire protection, courts, and defense. Most taxes are collected on imports, and government spending matches that tax income. Debt via government bonds is limited.

Then things take a turn for the worse. “The extreme prosperity of Basicland had created a peculiar outcome: As their affluence and leisure time grew, Basicland's citizens more and more whiled away their time in the excitement of casino gambling,” Munger writes.

Financial services soon grow to account for too big a portion of the economy, Munger says.“The winnings of the casinos eventually amounted to 25 percent of Basicland's GDP, while 22 percent of all employee earnings in Basicland were paid to persons employed by the casinos, many of whom were engineers needed elsewhere.”

Then, a shock: Imported energy costs rise, and low-cost labor competition from abroad appears, Munger writes. “Suddenly Basicland had to come up with 30 percent of its GDP every year, in foreign currency, to pay its creditors,” Munger writes.

The U.S. deficit — just the gap between spending and income in one year — is projected to hit $1.6 trillion in 2010. Total debt is project to exceed 100 percent of GDP starting in 2011.

In the parable, Munger strongly suggests that the United States take seriously the campaign of Reagan-era Fed Chairman Paul Volcker, who wants the big banks to cease pretending to be banks if they expect the freedom to trade securities on the side.

“He suggested that Basicland should strongly discourage casino gambling, partly through a complete ban on the trading in financial derivatives, and it should encourage former casino employees — and former casino patrons — to produce and sell items that foreigners were willing to buy,” Munger writes.

As the parable ends, none of the politicians listen, and Basicland turned into “Sorrowland,” Munger concludes.

If Charlie is right....how then shall we live?

As a nation we need to repent from our idolatrous ways (worshiping Mammon) and pray to God in heaven so that He may hear our prayers and heal our land. We are coming to the conclusion that this is the ONLY chance we have as a nation.

Sadly....I just don't see the evidence of that anywhere. I only see the love of evil, violence, perversity, mocking the Word of God, false teachers, strange earthquakes, strange weather, and the love of many growing cold.

Dear Jesus, we have been pathetic about using the blessings and talents you have given us. We have used them for our own selfish reasons and have gone whoring after the god of Mammon. We have forgotten our first love, which is you Lord. Cleanse us, forgive us, purify us and lead us back to the straight path. You are Lord of the harvest. Please help us to be your holy workers in these Last Days. Amen. Even so, come Lord Jesus.