Jan

19

Stop Buying Trinkets

January 19, 2006 | Comments Off

We sold our building to the Japanese, but it doesn’t make any difference whether it’s the Japanese or anybody else. We sold our buildings at ABC two years ago for about $175 million. That was equal to one day’s trade deficit with Japan. They sent up a bunch of VCRs and things, and we sent them the title to 54th Street and 6th Avenue. And we use up the one thing and they’ve got the other.

It’s got sort of a poetic justice to it. As a matter of fact, in 1626 I think, Peter Minuet handed a bunch of trinkets to the Indians and they paid him the island [Manhattan]. And now, people are handing us the trinkets, and we’re giving them the island. It happens every day. The trade deficit will be $100 billion plus, and that means we are giving out IOUs to the rest of the world that will draw interest, which are claims of future production of everybody in this room.
– Warren Buffet, 1991

We in America tend to buy a lot of stuff. Stuff that we may not even use for too long or even at all. In the meantime we are giving away not only hard earned dollars, but the land of our nation, and the economy that sustains it. The proof is that the once all-mighty dollar has recently lost value.

The recent bid from China for the Unocal company is an example. They did not succeeded on this big one this time, simply because of political pressure. But these figures may be surprising:

  • $58.8 Billion Trade Deficit in June 2005 – That is $200 of monthly imbalance for every person living int he USA. Can you stop buying $200 (per person on the household) of foreign trinkets per month? (see note at the end). Another interesting note is that on 1991 the trade deficit was $100 billion. Today, 14 years later is $700 billion (has grown a lot faster than inflation).
  • $14.6 Billion in Oil Imports every month – That is almost $50 of oil bought per person in the USA. Can you reduce the energy consumption by $50? Programmable Thermostat? Less driving? (see note at the end).
  • $4.8 Billion Trade Deficit with Canada (June 2005) – Even other industrialized nations are becoming smarter than us at producing and selling more than what they buy.
  • $17.6 Billion Trade Deficit with China (June 2005) – That means there is another $41.2 Billion in trade deficit with the rest of the world: China is not the only culprit! The rest of the world is eating our capital for lunch.

Guys and gals: lets stop buying so many trinkets. Use that money to invest them in revenue generating assets? (Certificate of Deposit, Bonds, Stocks, Real Estate)? Own things that bring more revenue (so that you can buy the things you need, enjoy, and are worth it). Don’t sell the country away for trinkets!!
Said that, we all need to buy things. When acquiring things, try to do the following whenever it makes financial sense, and it is possible:

  • Buy as local as possible – Buy from your community if possible and at a reasonable price (it keeps the money inside it, and saves on transportation costs: oil imports), or from the USA at the minimum. Community Sustained Agriculture or local farms are an example (Farmer’s Markets).
  • Buy Quality vs. Quantity – The USA can still produce some good quality products. It just can’t mass produce cheap products (wages and employee protections are too high compared to other countries). If you can choose between a cheap product made overseas, which may break easily, and a well constructed product made in the USA that may last generations… it may be worth waiting a bit, and accumulating money over time to buy the quality product. If it is not worth the wait, think about it: it may not be worth to buy the cheap overseas version anyway (on some situations).
  • Re-Use – ebay.com, freecycle.org, craigslist.org, flea markets, yard sales, consignment shops, etc. You do not have to be cheap. You can find almost new items in ebay at less than retail. And in the process you would be saving an article from the trash and avoiding buying another article from a foreign country. Also, before throwing things away, consider passing them to friends, or listing them in the before mentioned services. Consider sharing tools or items with friends when you are not using (they may reciprocate): pressure washers, chain saws, and carpet steam cleaners are examples of infrequently used items that you can share with your friends.
  • Reduce – How many things can you really use? Do you use everything in your house at least every couple of months? Maybe you need to consider changing spending habits and making sure that the things you buy are the things you really need and want. Reduce energy consumption also: optimize your errands to minimize driving and use programmable thermostats, for example.
  • Preventive Maintenance – A Japanese or German cars are ussually great, and last a long time: if you mantain them. Same thing goes for lawn mowers, pressure washers, vaccum cleanners, and even non powered things like furniture, mattress sets (rotation), etc. Mantain your stuff so that it doesn’t breaks down and forces you to buy something new (possibly from a foreign country).
  • Build it yourself (or repair it yourself – Recycle) – I have built bookshelves, and desks. I have stripped paint of furniture and refinished it. I have redone the upholstery of simple furniture. It is cheaper than buying a new product and looks almost as good (sometimes better, because is exactly what you wanted or needed). It saves money and it helps reduce the deficit.

What other suggestions you have for us, regular citizens, to help reduce the trade deficit?
References:

NOTE: I am aware that the products and services bought in the USA have a local component: local transportation, taxes, marketing, and retailing for example. The price you pay is a lot higher than the price bought from a different country.

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