Buffett [bought] stocks in companies that earn a "large part" of their profits outside the United States, and denominated in currencies other than dollars.

Buffett did not identify the companies, but the investments might be considerable. In his letter, Buffett did not itemize $7.15 billion of the $46.72 billion of stock investments that Berkshire had at year end.

That's Billion, with a "B." That's a lot of investment to leave unitemized.

Buffett began trading in currencies in March 2002, amid concern that U.S. policies were causing trade and budget deficits to soar, and would cause non-U.S. investors to pull money out of the country. He said his view has not changed.

Keep in mind that "non-U.S. investors" here means foreigners. But, the statement is very misleading because the investors who will "pull money out of the country" are just as likely to be domestic as they are to be foreign. The statement is just a red-herring designed to feed into growing nationalistic fervor.

Last year, the U.S. trade deficit rose 17.5 percent to a record $725.8 billion. Buffett said it might rise more, and that as investments shift, non-U.S. investors "will begin earning more on their holdings than we do on ours."

Two observations. First, the comparison between "non-U.S. investors" and "we" further emphasizes the 'us against them' dichotomy. Second, the trade deficit is largely caused by multinational companies, many of which are owned by great American "capitalists," that manufacture abroad and import to the US.

"As U.S. (interest) rates have risen relative to those of the rest of the world, holding most foreign currencies now involves a significant negative 'carry,'" Buffett wrote, referring to financing costs. "In contrast, the ownership of foreign equities is likely, over time, to create a positive carry--perhaps a substantial one."

What he's really saying is that there is NOTHING left in the US to own. REALLY. They (the really big players) already own everything worth owning. But, the US remains an outstanding source of INTEREST payments.

The best-known non-U.S. investment at Berkshire may be Asian oil producer PetroChina Co. . . . Berkshire owns about $1.92 billion of the company's shares, nearly four times what it paid for them.

Berkshire, however, also owns large stakes in U.S. companies with large non-U.S. sales, including Anheuser-Busch Cos., Coca-Cola Co., Procter & Gamble Co. and Wal-Mart Stores Inc.

So, now that we know that "investors" have lost faith in the United States, my question is, how long will it take for the United States to lose faith in investors?

The office also said Mr. Bush's proposals to save money on Medicare, Medicaid and most nonmilitary programs would offset about one-third of the cost of his other proposals.

The report comes as Republican leaders in Congress prepare to settle on their own budget for next year, which could differ substantially from Mr. Bush's. They are already running into political and economic obstacles as they try to extend Mr. Bush's tax cuts, pay for the war in Iraq and squeeze spending on antipoverty programs, education and most other areas of nonmilitary spending.

Senate Republicans, nervous about their prospects in this fall's midterm elections, are balking at Mr. Bush's proposal to trim $36 billion over five years from Medicare, the government health program for the elderly.

House and Senate leaders remain bogged down over a limited extension of Mr. Bush's tax cut for stock dividends, and Senate Republicans have repeatedly failed in efforts to permanently repeal the estate tax.

At first blush, the Congressional Budget Office's report appears optimistic because it envisions that the budget deficit will slowly decline from $371 billion this year as economic growth generates more revenue and as Mr. Bush's budget cuts take effect.

Measured as a share of the total economy, the budget deficit would decline to about 1 percent in 2011 from 2.8 percent this year. Though the government would still be borrowing money each year, the annual deficit would be low by historical standards.

But the budget office noted that it had not included money for military costs in Iraq and Afghanistan after this year. The Bush administration has asked for a total of $92 billion in supplemental spending this year for those efforts.

Mr. Bush's budget also omits any cost for preventing a huge expansion of the alternative minimum tax, a parallel income tax that is expected to engulf tens of millions of people over the next several years.

Mr. Bush's budget assumes that the government will reap well over $1 trillion from the alternative minimum tax over the next decade, but Republicans and Democrats alike have vowed to prevent that from happening.

The optimistic outlook also assumes that Congress freezes or cuts the vast majority of discretionary government programs outside of military and domestic security ones.

Mr. Bush's 2007 budget would cut $2.1 billion next year from education, which had been one of the president's areas for increased spending. It would also cut money for community development block grants, low-income housing, child-support enforcement against deadbeat fathers and scores of other programs with support in Congress.

The higher interest rates come as many students and parents are already struggling to cope with rising tuition costs. Department of Education figures suggest that at least 400,000 qualified students do not enroll in four-year colleges each year because of financial barriers.

The average debt of college graduates has jumped by 50 percent over the last decade, according to the Project on Student Debt, a nonprofit advocacy group. But for the last several years, low interest rates have helped students cushion the blow and reduce their monthly payments.

Education policy experts said the new cuts in subsidies to lenders and changes to interest rates will result in greater borrowing costs for many students and parents.

Students with Stafford loans, the most common type of federal loan, who have locked in variable rates as low as 4.7 percent this year will face higher monthly payments when those loans shift to a fixed rate of 6.8 percent in July.

The move to a fixed rate was first approved by Congress in 2002 with bipartisan support and the backing of many lenders and student groups, who believed the change would shield students from even higher variable rates. But now many students and parents oppose the change, fearing it will increase their monthly payments.

Mike Rau, whose 20-year-old daughter, Lisa, is a sophomore at San Francisco State University, is worried she will end up paying thousands of dollars more in interest on her Stafford loans.

"When she gets out of school and starts making payments, instead of it taking four years to pay off her loans it will take five or six years," said Rau, who is helping his daughter pay for college. "It saddles them with more debt for longer in their lives."

Lisa Rau, who is studying creative writing, communications and philosophy, is trying to save a portion of each paycheck from her 18-hour-a-week work-study job. But she is concerned that higher monthly interest payments will limit her options after college.

"It might have an impact on whether I go to grad school," she said. "If I don't have the money and I'm trying to pay off a lot of these loans and the interest rates are going up, that might be out of the question."

Financial aid experts said the move to a fixed interest rate will be painful for many borrowers in the short term, but could help students if variable rates continue to climb. As recently as the 2000-2001 academic year, the variable rate for Stafford loans exceeded 6.8 percent.

"The argument for fixed rates is that they are predictable for students and predictable for the government," said Sandy Baum, a senior policy analyst for the College Board and an economics professor at Skidmore College. But at a time when rates are still relatively low, "the idea that students are paying a higher rate than the market rate is a very unappealing one," she said.

As part of the new bill, Congress also increased the interest rate on loans paid by parents. Parent Loans for Undergraduate Students, better known as PLUS loans, had been scheduled to rise from the current rate of 6.1 percent to a fixed rate of 7.9 percent.

But lawmakers, seeking greater savings in the budget package, boosted the rate even higher, to 8.5 percent. The change is likely to make the loans less attractive to many parents.

"The question for parents is: Is it better to take out a PLUS loan or is it better to take out a home equity loan?" Baum said. "They need to look at all their options."

The changes will have broad consequences for colleges in the Bay Area. At UC Berkeley, 8,400 undergraduate students and 3,500 graduate students have borrowed money to pay for college using Stafford loans. Parents of 2,100 undergraduates are receiving PLUS loans.

Cheryl Resh, UC Berkeley's director of financial aid, plans to e-mail students this spring with advice on how to cope with the changes. She is already urging students to consider consolidating their loans before July 1 to lock in a lower interest rate.

"I'm hoping that parents of students who are here right now are going to help their students take advantage of consolidating at a time when there are still some very good rates out there," Resh said.

Barbara Hubler, director of financial aid at San Francisco State University, said she and other college administrators were disappointed that Congress in recent years has not boosted funding for Pell Grants -- which are awards, not loans -- to help students struggling to pay for college.

"We know that across the (California State University system) more students are reaching the maximum on their federal direct loans and are having to take out more money from private lenders," Hubler said. "That is another drawback. Those are not subsidized by the government. ... It just means more money and another lender they will have to pay back when they get out of school."

Supporters of the new law said it contains some provisions to help students. Congress raised the Stafford loan limits to allow students to borrow more in their first two years in college, although the total they can borrow remains at $23,000. The measure also will phase out the 3 percent origination fees for Stafford loans, although some lenders already have been discounting the fees.

The bill was narrowly passed by Congress because of concerns over the $39 billion in cuts to Medicaid, Medicare, student loans and other programs. In December, Vice President Dick Cheney cast a tie-breaking vote to pass it in the Senate. The House passed the bill Feb. 1 by just two votes.

The new law has been a political liability for Republicans in Congress and the White House. During a question-and- answer session at Kansas State University in January, Bush was asked by sophomore Tiffany Cooper why the government was cutting $12 billion from student loan programs.

"I was just wondering how is that supposed to help our futures?" she asked.

Bush responded: "Actually, I think what we did was reform the student loan program. We are not cutting money out of it."

The $12 billion will come largely from trimming the profits made by lenders on student loans and raising the rates on parent borrowers, according to the Congressional Budget Office.

Democrats said the money should have been used to lower interest rates and increase Pell Grants instead of being diverted to the federal Treasury. Student groups claimed the changes were mostly aimed at paying for $70 billion in tax cuts.

"Some people will describe it as paying down the deficit," said Luke Swarthout, a higher education associate for the Public Interest Research Group. "If you look at how the reconciliation process started, it becomes clear this is, in fact, a down payment on a series of tax cuts."
Increasing costs of higher education

Starting July 1, the cost of student loans for students and their families is scheduled to rise because of changes approved by Congress and President Bush. Among them:

-- Students who have been paying variable interest rates of 4.7 percent (for in-school students) to 5.3 percent (for college graduates) for their federal Stafford loans will now pay a fixed rate of 6.8 percent. The change, first approved by Congress in 2002, will affect nearly 10 million students who receive Stafford loans each year. An average college student who graduates with $17,500 in student loans will pay an additional $1,600 in interest over 10 years by switching from a 5.3 percent variable rate to a 6.8 percent fixed rate.

-- Interest rates for loans taken out by parents will jump from a variable rate of 6.1 percent to a fixed rate of 8.5 percent cent under the bill passed by Congress last month. About 800,000 parents each year take out the federal loan, called the PLUS loan. A parent who took out $10,000 in PLUS loans will pay an additional $1,500 over 10 years in interest by switching to an 8.5 percent fixed rate.

-- Loan limits for freshmen will be raised from $2,625 to $3,500, and for sophomores from $3,500 to $4,500. But the total amount a student can borrow through the program will stay the same at $23,000.

-- Loan limits for professional and graduate students will be raised from $10,000 to $12,000. Graduate students will now be eligible for PLUS loans.

-- Student borrowers will no longer be able to consolidate their loans while they are in school, and they won't be able to consolidate their loans with their spouse's loans.

-- The 3 percent origination fee for loans will be phased out gradually by 2010. But a separate 1 percent loan guaranty fee will be included.

-- The Department of Education will offer two new grants: Academic Competitiveness grants of $750 for freshmen and $1,300 for sophomores, and SMART grants for juniors and seniors of $4,000. Applicants must be full-time students and eligible for Pell Grants.
Advice from financial aid experts

Here are some strategies financial aid experts suggest for holding down student loan costs when new interest rate increases start this summer:

-- Consider consolidating student loans before July 1, when the higher interest rates kick in. "Being able to consolidate and lock in a low interest rate is always a good thing for students to do," said Cheryl Resh, director of financial aid at UC Berkeley.

-- Parents should look into the option of a home equity loan -- it may be cheaper than a PLUS loan when the rate goes up to 8.5 percent. "The interest on home equity loans is tax deductible," said Sandy Baum, a senior policy analyst for the College Board. "There are some people who can deduct interest on education loans, but not everyone."

-- Shop around among loan providers: Some lenders are waiving origination fees, others are not. The interest rates are set on federal loans, but the terms of the loan are often very different. And students should avoid taking on too much debt. "People have to be more cautious about their borrowing levels," Baum said. "You should never borrow the maximum amount you can afford. You should always give yourself some leeway."

Sources: Chronicle staff, Department of Education, Public Interest Research Group, United States Student Association

E-mail Zachary Coile at zcoile@sfchronicle.com.

"In New York State, this would mean cuts of nearly $770 million for our hospital-based health care providers - hospitals, health care and nursing facilities, and home health agencies that provide critical services to the elderly and populations that cannot afford health care on their own," McHugh said. "In my own 23rd Congressional District, these cuts would mean the loss of more than $16 million in Medicare payments over the next five years. Frankly, our hospitals and health care facilities can ill afford to sustain these cuts and continue to provide all of the services that our communities both need and deserve."

Healthcare Association of New York State President Daniel Sisto said, "These Medicare cuts would be catastrophic for New York's health care providers and our patients. We are thankful for the courage and leadership Congressman McHugh and his Republican colleagues in the House are demonstrating by taking a firm stand against a plan that would jeopardize our ability to provide the quality care our patients deserve."

The impact of the proposed cuts on hospitals and hospital-based care alone would be more than $10 billion nationwide. In addition, the plan finds other major sources of savings by eliminating inflation-based Medicare payment increases for skilled nursing facilities, home health agencies, and hospices, as well as by reducing coverage for patients requiring post-acute care for hip and knee replacement. Currently, 32 percent of the nation's hospitals have negative total margins and 7 out of 10 are losing money on Medicare.

"Our nation, and Congress in particular, faces a major challenge in terms of demonstrating fiscal restraint without jeopardizing critical programs such as Medicare," McHugh said. "It will only become more essential as our Baby Boomers age, and we must be cognizant of future costs. But the impact of these sizeable cuts will be felt far and wide by hospitals, health care providers, and patients across the U.S. who are already stretching scarce resources to the max."

Members of the New York Congressional Delegation who thus far have joined McHugh in the effort are Reps. Boehlert, Kelly, King, Kuhl, Sweeney, and Walsh.

"On our side of the aisle, in an election year, the message is: 'Can't we put this off?"' Senate Budget Committee chairman Judd Gregg, R-N.H., said Wednesday of the plan to cut Medicare provider payments.

One item that can't be put off much longer is a bill to raise the $8.2 trillion limit on the national debt. Congress must act before lawmakers leave Washington on March 18 for a weeklong recess or else the first- ever default on U.S. obligations could occur.

Gregg and his House Budget Committee counterpart, Jim Nussle, R-Iowa, have tentatively scheduled committee votes on the budget next week

Both men are torn between the demands of conservatives for spending cuts and the reluctance of politically vulnerable Republicans from swing districts and states to cast risky votes to cut popular programs.

Meanwhile, lawmakers have yet to act on Bush's $92 billion request for emergency funding for the wars in Iraq and Afghanistan and more hurricane relief.

The occasion was Senate debate and a roll call vote last week on $1 billion in funding for LIHEAP, which has been woefully under-funded since falling under the knife of Bush-administration budget cuts. LIHEAP was authorized by Congress to receive $5.1 billion in the Energy Policy Act of 2005, but only $2.2 billion was appropriated in fiscal year 2006 thanks to the president's Deficit Reduction Act.

Despite soaring energy prices that have placed already-struggling people in even more trouble this winter, Team Bush decided in December that it was more important to give more tax cuts to the wealthy than to fund home heating for the poor.

Not to be outdone by Lott's callousness, Republican John Ensign of Nevada, whined about the dangers of increasing the deficit by heating the homes of the elderly, despite having voted for every budget-busting tax cut placed before the Senate.

"There are those of us who believe that deficits are real. They are absolutely real," said Ensign. "People get up and talk about them all the time. But when it comes right down to whether you are willing to make tough choices instead of just increasing the spending and passing that debt on to the next generation, they aren't willing to offer other spending cuts so that we are not increasing the deficit."

Fortunately, warmer hearts prevailed and the Snowe-sponsored legislation (S. 2320) passed Thursday by a vote of 66-31, with most Republicans voting against it.

"The current low-income fuel assistance program has not had an increase in real dollar terms since 1983," said Snowe, who has voted with the Democrats on every previous attempt to fund the program. "Let there be no mistake about the fact that this program is vital. It is significant. It is essential to so many of the families in my State and across the country. The urgency of this legislation has escalated to an emergency."

Snowe's colleague from Maine, Republican Susan Collins, supported the legislation in more real-life terms.

"I want my colleagues to understand exactly what is at stake here," said Collins. "Early Tuesday morning, my State suffered a terrible tragedy--three people, including a woman and her 10-year-old son, died when their house caught fire and burned to the ground. There was the most deadly fire in Maine in 6 years. They lived in Limestone, ME, a town in northern Maine. On the night of the fire, temperatures were below zero. The family had run out of heating oil, and as a result, was using wood stoves to provide the heat. According to the firefighters, the fire started near one of the wood stoves in the kitchen. This is literally a matter of life and death."

Jack Reed and Democrat John Kerry tried on many occasions in 2005 to pass more ambitious LIHEAP funding measures – for $3.1 billion and $2.9 billion – but were shot down each time by the GOP. While the measure passed last week must still go to the House for approval, it appears that having Republican sponsorship and a much lower price tag might allow some help to get to the needy before winter ends.

Said Reed in a powerful argument for the bill's passage: "We have a chance to help people, a last chance to help people this year who are literally freezing. It we do not take it, shame on us."