Squanderville vs Thriftville…

5 years ago (Nov 2003) Buffett wrote a great article in FORTUNE that helps simplify the macroeconomic implications of a trade deficit. This device is the analogy of two islands: Thriftville and Squanderville…

We were taught in Economics 101 that countries could not for long sustain large, ever-growing trade deficits. At a point, so it was claimed, the spree of the consumption-happy nation would be braked by currency-rate adjustments and by the unwillingness of creditor countries to accept an endless flow of IOUs from the big spenders. And that’s the way it has indeed worked for the rest of the world, as we can see by the abrupt shutoffs of credit that many profligate nations have suffered in recent decades.

The U.S., however, enjoys special status. In effect, we can behave today as we wish because our past financial behavior was so exemplary–and because we are so rich. Neither our capacity nor our intention to pay is questioned, and we continue to have a mountain of desirable assets to trade for consumables. In other words, our national credit card allows us to charge truly breathtaking amounts. But that card’s credit line is not limitless.

Read Buffett’s original article.

Buffett even goes so far as to suggest a very creative solution – the creation of Import Credits that are issued to exporters based on the value of goods they sell abroad.

Seeking Alpha had a brief article this evening that pointed to Buffett’s original piece…

One thought on “Squanderville vs Thriftville…”

  1. Interesting blog! Is your theme custom made or did you download it from somewhere? A design like yours with a few simple adjustements would really make my blog jump out. Please let me know where you got your theme. Kudos

Leave a Reply

Your email address will not be published. Required fields are marked *