How Buffett Tripped Over the Dollar

The Euro Factor

At the end of the day, all decisions to buy and sell things are made at the expense of some other thing. In the case of the dollar, that other thing is a currency in Europe that may simply not exist five years from now. Influential Italian politicians have begun calling for a return to the lira, a majority of Germans polled say they would like to see a return to the deutschemark, and a leading British editorialist called the euro "a heroic project" whose ultimate failure has become more likely.

What Buffett and his cohorts failed to understand as they thumbed their nose at the dollar was that it's impossible for Europeans to sustain a single currency without a commitment to a single European political and economic policy. And the liberal immigration laws demanded by such integration have proven to be social anathema, as Northern Europeans have freaked out over the prospect of a flood of cheap Eastern European and Turkish labor stealing their good blue-collar jobs.

There will be no credible alternative to the dollar as a store of value until the Europeans decide they can live and work together in peace. While it is a noble and worthwhile goal, there is at least 300 years of recent world history to suggest that it is an unlikely prospect.

For the foreseeable future, the greenback will continue to denominate, and dominate, world trade. And it is only a matter of time before Buffett announces that he is returning to matters he understands better than world currency flows, such as the value of Dairy Queen, See's Candies and Coke.

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