I’m not sure if it’s my fascination with Ron Paul’s libertarian campaign, but I’ve become hypersensitive to the budget deficit, fed rates, the declining dollar and rising inflation. I’m seeing fundamental things in our economy that have me worried–I keep my mouth shut because I lack experience in macro economics and I don’t want to misrepresent my expertise. But when I hear “the fed issued another rate cut,” my first though now isn’t about the stock market gain, it’s about the damage we just did by deflating our dollar and widening our import/export gap.

Five years ago, Warren Buffett blew the whistle and nobody listened:

Through the spring of 2002, I had lived nearly 72 years without purchasing a foreign currency. Since then Berkshire has made significant investments in — and today holds — several currencies. I won’t give you particulars; in fact, it is largely irrelevant which currencies they are. What does matter is the underlying point: To hold other currencies is to believe that the dollar will decline.

Buffett turned out to be right:

He set out a cute analogy using the two small islands of Squanderville and Thriftville. He uses the analogy to explain what how the budget deficit puts American sovereignty at great risk.

Here’s the non-cute version:

Simply put, after World War II and up until the early 1970s we operated in [a thrifty] style, regularly selling more abroad than we purchased. We concurrently invested our surplus abroad, with the result that our net investment — that is, our holdings of foreign assets less foreign holdings of U.S. assets — increased from $37 billion in 1950 to $68 billion in 1970. In those days, to sum up, our country’s “net worth,” viewed in totality, consisted of all the wealth within our borders plus a modest portion of the wealth in the rest of the world.

In the late 1970s the trade situation reversed, producing deficits that initially ran about 1 percent of GDP. That was hardly serious, particularly because net investment income remained positive. Indeed, with the power of compound interest working for us, our net ownership balance hit its high in 1980 at $360 billion.

Since then, however, it’s been all downhill, with the pace of decline rapidly accelerating in the past five years. Our annual trade deficit now exceeds 4 percent of GDP. Equally ominous, the rest of the world owns a staggering $2.5 trillion more of the U.S. than we own of other countries. Some of this $2.5 trillion is invested in claim checks — U.S. bonds, both governmental and private — and some in such assets as property and equity securities.

The amazing thing about this article was that Buffett proposed a solution to the problem. The obvious solution was for Congress to dial back our foreign investments, reduce the size of the military, not invade Iraq, balance the budget, and use any surplus to pay down the debt. But none of that was going to happen. So Buffett came up with a workaround which didn’t require it.

Here was Buffett’s solution:

We would… issue what I will call Import Certificates (ICs) to all U.S. exporters in an amount equal to the dollar value of their exports. Each exporter would, in turn, sell the ICs to parties — either exporters abroad or importers here — wanting to get goods into the U.S. To import $1 million of goods, for example, an importer would need ICs that were the byproduct of $1 million of exports. The inevitable result: trade balance.

That is an extremely interesting idea. As a business owner, I don’t like the extra layer of bullshit it would add to overseas purchases/sales. But given our current political environment, this may still be the cleanest fix available.

Buffet points out that it would also work as a reverse tariff, since exporters would get IC credits for the exports that they could then sell to importers. Buffet’s example:

In my opinion, many exporters would view this as a reduction in cost, one that would let them cut the prices of their products in international markets. Commodity-type products would particularly encourage this kind of behavior. If aluminum, for example, was selling for 66 cents per pound domestically and ICs were worth 10 percent, domestic aluminum producers could sell for about 60 cents per pound (plus transportation costs) in foreign markets and still earn normal margins. In this scenario, the output of the U.S. would become significantly more competitive and exports would expand. Along the way, the number of jobs would grow.

I believe that ICs would produce, rather promptly, a U.S. trade equilibrium well above present export levels but below present import levels. The certificates would moderately aid all our industries in world competition, even as the free market determined which of them ultimately met the test of “comparative advantage.”

I’m not positive this would work. I’m also not sure if there’s any feasible way it could wind its way through our current big-budget, pro-war Congress; maybe on the back of one of the presidential contenders (Buffett has been stumping for Hillary). But it’s nice hearing somebody thinking outside the box with an idea that doesn’t fail my “this is obviously bullshit” test.

It’s easy to forget what our country was like five years ago when Buffett first suggested this. If an idea didn’t contain some form of “invade Iraq” or “kill Muslims” then it was actively discredited by the administration. That’s still somewhat the case now but–among the American people, if not our leadership–that sentiment has mostly faded.

Maybe it’s time we took a second look at Import Certificates.