Back in 2003, Warren Buffet wrote the memorable Squanderville vs. Thriftville in which he lamented the growing U.S. trade deficit and wondered how long we Squandervillians could continue down a road where Thriftvillians in Asia would go on accepting our IOUs in exchange for goods they worked so hard to produce.

Buffet proposed some common sense solutions to remedying the problem and it was a timely warning that, if heeded, may have made the events of the last few years much less traumatic for the global financial system. But, ultimately, nobody really listened.

Fast forward to 2010 and Buffet’s partner Charles Munger now has an equally important commentary over at Slate (hat tip JW) and, it too is a desert island parable. This time, instead of Squanderville, it’s Basicland, where, after hundreds of years of responsible living, casinos seem to have destroyed the place.

Basically, It’s Over
A parable about how one nation came to financial ruin.

In the early 1700s, Europeans discovered in the Pacific Ocean a large, unpopulated island with a temperate climate, rich in all nature’s bounty except coal, oil, and natural gas. Reflecting its lack of civilization, they named this island “Basicland.”

The Europeans rapidly repopulated Basicland, creating a new nation. They installed a system of government like that of the early United States. There was much encouragement of trade, and no internal tariff or other impediment to such trade. Property rights were greatly respected and strongly enforced. The banking system was simple. It adapted to a national ethos that sought to provide a sound currency, efficient trade, and ample loans for credit-worthy businesses while strongly discouraging loans to the incompetent or…

Based on the title of Charlie’s commentary and the one atop this post, it’s not too hard to figure out where this is all going – it all has to do with what was done with debt.

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