The Buffett Investing Genius is Magnified by USAPonzi
May 12, 2014
Warren Buffett (along with his long time business partner, Charlie Munger) is almost universally admired and respected (even revered) for his "investing genius" and "brilliant business management skills". And rightfully so because of the success they have achieved with their Berkshire Hathaway company and the wealth they have created for their investors. Mr. Buffett, Mr. Munger, and their management team have demonstrated a remarkable ability to identify outstanding long term business opportunities with outstanding management and to make well timed investments in many such rapidly growing businesses.
However, I contend that the most important factor in the magnitude of this success is the very early recognition by Mr. Buffett of the existence of USAPonzi and the dramatically beneficial effect that USAPonzi would have on asset values, especially equity assets. Mr. Buffett is a mathematical and business genius and has been demonstrating these skills for now over half a century. He is widely acclaimed as one of the most successful investors in history and has amassed a personal fortune that is estimated to be worth $65.2 Billion (as of 5/9/14). (see Hedge Fund Ponzi)
In his February 27, 2014 letter to Berkshire Hathaway shareholders, Mr. Buffett reprinted a letter he sent to Katharine Graham in 1975 who at the time was Chairman and CEO of the Washington Post (Mr. Buffett was then on the board of The Washington Post) explaining the perils of making pension commitments without proper appreciation for the impact of these pensions promises on the future financial performance of the company. (see Buffett on Pensions)
Based on this letter and the message that it conveyed, this letter could have also been sent to the President of the United States of America (and the Congress) and if the U.S. Government would have heeded the wise counsel of Mr. Buffett that might have exposed USAPonzi after only operating the Ponzi scheme for 6 years or so. While Mr. Buffett's reputation and respect is almost immeasurable today, this letter, in 1975, would probably have been ignored by the Government with almost the same degree of flippancy that they ignore my letters today. (I may be giving myself way too much credit with that statement).
The Government of the United States of America has been doing for 46 years exactly what Mr. Buffett, in 1975, was warning Katharine Graham not to do; making promises that conflicted with a willingness to fund them.
Mr. Buffett knew in 1975 that as long as the U.S. Government chose to not fund these future commitments, individuals and businesses were not going to be taxed at the proper level to support these promises and therefore good businesses would appear to be great businesses and good investments would appear to be great investments. I feel sure that even Mr. Buffett could not have imagined that this "con game" would have continued as long as it has. As U.S. Total Assets Bubble shows, the corrupt and fraudulent accounting that conceals USAPonzi makes all private assets appear to be about 7 times as valuable as they really would be with GAAP accounting.
Over the last couple of years Mr. Buffett has made a strong point that he should be paying more taxes than the Government is currently levying on him. He compares his tax rate with that of his secretary saying that it is not right that he has a lower tax rate than she does. Well I guess so! As Tax Rate Absurdity shows, we all need to be paying 3 times what we pay now just to keep the fiscal crisis from getting any worse IF we are going to meet our current social benefit promises. But Warren Buffett and his businesses should have been paying this 3 times or so more taxes for the last 46 years but since they have not been, Mr. Buffett now appears to be much much richer than he really is.
Because of Mr. Buffett's enormous wealth he personally is a proxy for the massive under taxing of the U.S. Citizenry since he pays taxes as an individual and the businesses that he owns pay taxes at the markedly reduced rate of USAPonzi which makes Mr. Buffett appear wealthier and his businesses appear to be much more profitable and therefore much more valuable. So the 7X overvaluation of all private assets in the U.S. that USAPonzi is creating should apply nominally at the same rate for Mr. Buffett. Hence his "real net worth" should be on the order of $65.2B/7=$9.3B (with GAAP accounting by the U.S. Government) which is still a fair chunk of change.
But this is the kind of distortion that Cash Accounting vs GAAP Accounting can create when you intentionally do it for 46 years. And this distortion factor applies to nearly all millionaires, billionaires, and businesses so the wealth effect that people talk about being caused by the Fed printing money is small potatoes when compared to the wealth effect caused by the corrupt and fraudulent accounting of the U.S. Government. (see Take Away the Punch Barrel)
In this February 27, 2014 letter to Berkshire Hathaway shareholders, Mr. Buffett states: "During the next decade, you will read a lot of news – bad news – about public pension plans. I hope my memo is helpful to you in understanding the necessity for prompt remedial action where problems exist."
In my mind this is a clear warning by Mr. Buffett of the problems that are coming to state and local governments that he cites in his letter but as his letter carefully states "bad news -- about public pension plans" so while not calling out the Federal Government directly he is also sending them a message.
Now for the BAD NEWS!!
The assessment of Mr. Buffett's net worth that I presented above compares his net worth based on our current Cash Accounting vs his net worth with GAAP Accounting. With Cash Accounting Mr. Buffett is paying his part of the current year cost of the social benefit payments (actually he is not paying all of that because we have a cash deficit as well) and it looks like his net worth is $$65.2 Billion. According to GAAP Accounting he should have been paying his part of the $95.4 Trillion Obligation that we have incurred for the people that are already receiving these promised social benefits which is what brings his net worth down to $9.3B. But GAAP Accounting only assesses the liability for the social benefits for people that are already receiving these promised social benefits. We also have a liability to pay these same promises to the people that are not yet eligible but will become eligible for these social benefits including those that are not yet born. So our GAAP Obligation of $95.4 Trillion understates our true liability by over 2X. This total liability is measured by an accounting system called Fiscal Gap Accounting and the Government's own assessment of this Fiscal Gap liability as of the end of FY2013 (September 30, 2013) was $205 Trillion.
If Mr. Buffett paid his fair share of that Fiscal Gap liability his net worth would be negative. The following table shows what his net worth (and that of the total U.S. Citizenry) would be with a balanced budget under each of these accounting systems.
Warren Buffett Total U.S. Citizenry
Net Worth Tax Owed Net Worth Tax Owed
but Not Paid but Not Paid
Current Perception $65.2B $114.4T
Cash Accounting $55.0B $10.2B $97.0T $17.4T Debt
GAAP Accounting $9.3B $55.9B $19.0T $95.4T Obligation
Fiscal Gap Accounting -$55.5B $120.7B -$90.6T $205.0T Fiscal Gap
(estimate as of May 9, 2014)
(see "Our Government is Totally Broke")
This is why it is necessary that we pass The Inform Act (www.theinformact.org) so that the U.S. Government can plan our budgeting process with an accurate (Fiscal Gap) assessment of our future commitments.
I just wish that someone with authority and respect would come out and directly state the obvious; The Government of the United States of America is lying when it is committing to social benefits levels that we cannot possibly afford. The Government of the United States of America is lying when it says we only need to pay taxes sufficient to finance current year spending. We also need to be paying enough tax to finance our future year commitments as well.
The U.S. Government has been dramatically, corruptly, and fraudulently undertaxing the U.S. Citizenry and U.S. businesses for the last 46 years and as a result has been running
"The Biggest Ponzi Scheme on the Planet"(USAPonzi).
Next Page: The Ponzi Economy