–The Euro...The New World Currency?

Warren Buffett Warns of Financial 'Chaos'
Jon E. Dougherty, NewsMax.com

The Sage of Omaha has real worries about the U.S. dollar.

It is no surprise that billionaire stock investor Warren Buffett continues to flee the U.S. dollar as he pours billions into foreign currencies.

Last year Berkshire Hathaway, Buffett’s holding company, reported it had placed some $12 billion in foreign currencies.

Now Forbes reports that Buffett continues to exit dollar investments, and Berkshire Hathaway holds some $20 billion in foreign currencies.

Buffett has used foreign currencies as a hedge against his weakly performing U.S. portfolio.

According to the New York Times, the firm reversed a second quarter loss and gained $412 million between July and September, after increasing its share of foreign currency contracts from $12 billion at the close of 2003 to $20 billion now.

Buffett managed to do that by betting the dollar would decline, and it has.

In fact, it has recently hit record lows against the euro, and experts who spoke to the Times believe the decline will continue, possibly for years.

"In 2002, we entered the foreign currency market for the first time in my life, and in 2003 we enlarged our position as I became increasingly bearish on the dollar," Buffett told investors in a letter in last year's annual report.

He remains bearish on the dollar even now.

Recently Buffett spoke with Forbes, who described him as full of “doom and gloom” for the dollar.

For one thing Buffett fears the $10 trillion of the U.S. economy owned by foreigners.

As they continue to exit the dollar, it could wreak havoc. “If lots of people try to leave the market, we’ll have chaos because they won’t get through the door,” Buffett told Forbes.

Buffett believes that a the dollar fall off “could cause major disruptions in financial markets.”

Today, Buffett continues his strong position in the euro, sterling and six other currencies.

The Federal Reserve has continued to increase interest rates – a conventional method of boosting the value of dollar. But Buffett is not sure this will work, and says the move simply will “put off the day of reckoning.”

What worries Buffett is the huge deficits being run up by the federal government, adding to the huge existing debt load.

Buffett tells Forbes he may end up owning currencies “for years and years” - and worries U.S. politicians will fix the deficit problem using inflation.

"The dollar is in a decline that will continue for years to come," Jim Rogers, co-founder of the Quantum fund with Soros in 1969. "Somebody's making a whole lot of money, if not the hedge funds."

In the long run, the dollar's decline will definitely hamper U.S. economic growth. Also, says the Christian Science Monitor, a continued slide in value could cause a run on the dollar, which could affect "everything from mortgages to prices at Wal-Mart."

But there is an upside as well. The dollar's decline makes U.S. goods less expensive and easier for them to be sold overseas. Also, it could be a boon for other industries, such as tourism, as foreign residents find exchange rates cheaper.