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3.5. Warren Buffet on Trade Deficit

The Successful American Business Mogul and Investor Warren Buffet was quoted in the Associated Press (January 20th 2006) as saying that ‘The U.S Trade Deficit is a bigger threat to the domestic Economy than either the federal budget Deficit or consumer debt and could lead to political turmoil… Right now, the rest of the world owns $3 trillion more of us than we own of them’. He was further quoted as saying that ‘in effect, our Economy has been behaving like an extraordinary rich family that possesses an immense farm. In order to consume 4% more than we produce-that is the Trade Deficit- we have day by day been both selling pieces of the farm and increasing the mortgage on what we still own.

Buffet proposed a tool called ‘IMPORT CERTIFICATES’ as a solution to the United States problem and ensure balanced Trade. He was further quoted as saying; ‘The Rest of the world owns a staggering $2.5 trillion more of the U.S than we own of the other countries. Some of this $2.5 trillion is invested in claim checks- U.S bonds, both governmental and private- and some in such assets as property and equity securities.

Import Certificate is a proposed mechanism to implement ‘balanced Trade’, and eliminate a Country’s Trade Deficit. The idea was to create a market for transferable import certificate (ICs) that would represent the right to import a certain dollar amount of goods into the United States. The plan was that the Transferable ICs would be issued to US exporters in an amount equal to the dollar amount of the goods they export and they could only be utilized once. They could be sold or Traded to importers who must purchase them in order to legally import goods to the U.S. The price of ICs are set by free market forces, and therefore dependent on the balance between entrepreneurs’ willingness to pay the ICs market price for importing goods into the USA and the global volume of goods exported from the US (Supply and Demand).

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