MBA 1. Is Warren Buffett’s decision to bet against the dollar a good one? Why or why not?

Yes Warren Buffett’s decision to be against thedollar is a good one. Buffett is betting that American trade deficit will not be restored and the country’s practice of borrowing from abroad to pay for the current goods and services will not stop. The USA borrows from abroad to finance its trade deficit, on top of that the USA government spends more money than it takes from taxes. The budget deficit increases the gap between country’s national savings and national income and and also widens the deficit in the current account by necessitating the country to borrow more money from other foreign countries. This widened current deficit puts strain on the USA currency in the financial markets. If Americans are going to buy inexpensive imported goods and the USA government has a budget shortage, I think Warren Buffett is making a fantastic move by betting against the dollar. Between 2002 and 2007 the dollar has fallen by 40 percent.

2. Why has the United States developed such large current account deficits?

I and a lot of people believe the United States has developed such a large current account deficit is the trade deficit. The USA is importing more goods and services more than it exports so it has held trade deficit since the late 1960s and this trade deficit has been mushrooming at an unbelievable rate since 1997. The increasing oil prices in the last few years has helped increased the current account deficit too. Another reason for the current account deficit could be attributed to the budget deficit. In almost every year the government cuts taxes and increases spending. The United States had a surplus of $127 billion in 2001 and anticipated to have a budget surplus for a while. All the surplus disappeared as sthe USA approved a tax cut during President Bush’s