Buffett Sees Massive Inflation to Handle Staggering Debt
Monday, May 4, 2009 2:34 PM
By: Dan Weil (Newsmax.com)
Faced with a staggering national debt relative to the rest of the world, Buffett says the U.S. government will do what every country that has denominated its debt in its own currency has done — "inflate its way out of the burden of that debt."
The explosive rise of the U.S. budget deficit and debt burden will lead to serious inflation down the road, says billionaire and Obama supporter Warren Buffett.
The Congressional Budget Office predicts that government debt will peak around 54 percent of GDP in 2011.
But Buffett told CNBC Monday morning that the ratio could surpass 80 percent — unless there are significant spending cuts or tax increases.
After a testy exchange with Sen. Judd Gregg, who suggested that President Obama’s plans to hike federal spending would only increase the nation’s staggering national debt, Buffett relented by stating that, in the end, the U.S. government simply will do what every other government has done in such circumstances.
“A country that continuously expands its debt as a percentage of GDP and raises much of the money abroad to finance that, at some point, it’s going to inflate its way out of the burden of that debt,” Buffett said.
Experience proves that, he points out.
“Every country that has denominated its debt in its own currency and has found itself with uncomfortable amounts of debt relative to the rest of the world, in the end they inflate,” Buffett explains.
“That becomes a tax on everybody that has fixed dollar investments.” (Marc's note: It will also reduce the value of all those billions being held by foreign currency pools. Ha ha.)
Of course, it’s likely that these trends also will mean a serious swoon for the U.S. dollar.
Buffett also suggested that dollar denominated investments like T-bills won’t be a wise investment, in the long run. (Marc's note: The ultimate value of the bills will be less than nominal since the dollar will be losing value at a greater rate than the T-bills pay in interest)
Elsewhere in the economy, Buffett sees unemployment rising further. “Who knows where it tops out,” he says. But, “it will top out eventually.”
Buffett remains bullish long-term for the economy. “We have a wonderful economy over time,” he says.
We do come out of recessions, Buffett says.
“The biggest thing that brings us out of them is the fact that we have a system that works very well over time, even though it gets gummed up periodically.”
Buffett’s Berkshire Hathaway has $20 billion in cash and is "perfectly willing to make a deal that's compelling," he told reporters at the end of the company’s annual meeting Sunday.
The Oracle of Omaha doesn’t have anything specific in mind, and neither he nor Berkshire’s Vice Chairman Charlie Munger would reveal which sectors of the economy or regions of the country interest them most.
(I usually wouldn't post a piece from NEWSMAX.com since it is a conservative site, but Buffet is a strong Obama supporter and a source and force unto himself. It doesn't matter if one reads it on a bathroom wall, Buffet's words count. I would add with some hubris (sorry) that his assessment looks kinda like what I have been saying. The economy will recover, but only after a long spell of high inflation and slow growth. As the value of the dollar falls, investments will lose value because those funds will represent less spending power. OPINION: As expected, the massive spending will bulldoze the economy into the right shape,but at a cost to future generations that may make our inheritors mad as hell. I won't be here,so I really don't give a shit. My SSA benefit will quickly top $2000/mo. with COLA increases and I have no investments to worry about. My complaints about this admin have been about the wicked (!) deceptions foisted on the American people. Change? Bullshit! These methods of recovery have been around since modern industrial economies first formed and have led to disasters for sattelite economies not able to force other economies to work in tandem. We will get co-operation from the euros,Chinese,and others because we are the only big brother they have and they know they better damn well go with the flow. As the dollar falls, they will experience internal pressure to tariff incoming American goods so as to slow the outflow of their "good" currency. They won't do that. They will gnash their teeth and ride the ride until our bad debt has been spread worldwide. Tra la la. Screw them; buncha backstabbers. The ridiculous program spending in the omnibus budget bill is reversible and will be negated once the American people wake up and "throw the bums out". I can't blame those who voted for Obama though, the Repubs had totally lost credibility.
Monday, May 4, 2009 2:34 PM
By: Dan Weil (Newsmax.com)
Faced with a staggering national debt relative to the rest of the world, Buffett says the U.S. government will do what every country that has denominated its debt in its own currency has done — "inflate its way out of the burden of that debt."
The explosive rise of the U.S. budget deficit and debt burden will lead to serious inflation down the road, says billionaire and Obama supporter Warren Buffett.
The Congressional Budget Office predicts that government debt will peak around 54 percent of GDP in 2011.
But Buffett told CNBC Monday morning that the ratio could surpass 80 percent — unless there are significant spending cuts or tax increases.
After a testy exchange with Sen. Judd Gregg, who suggested that President Obama’s plans to hike federal spending would only increase the nation’s staggering national debt, Buffett relented by stating that, in the end, the U.S. government simply will do what every other government has done in such circumstances.
“A country that continuously expands its debt as a percentage of GDP and raises much of the money abroad to finance that, at some point, it’s going to inflate its way out of the burden of that debt,” Buffett said.
Experience proves that, he points out.
“Every country that has denominated its debt in its own currency and has found itself with uncomfortable amounts of debt relative to the rest of the world, in the end they inflate,” Buffett explains.
“That becomes a tax on everybody that has fixed dollar investments.” (Marc's note: It will also reduce the value of all those billions being held by foreign currency pools. Ha ha.)
Of course, it’s likely that these trends also will mean a serious swoon for the U.S. dollar.
Buffett also suggested that dollar denominated investments like T-bills won’t be a wise investment, in the long run. (Marc's note: The ultimate value of the bills will be less than nominal since the dollar will be losing value at a greater rate than the T-bills pay in interest)
Elsewhere in the economy, Buffett sees unemployment rising further. “Who knows where it tops out,” he says. But, “it will top out eventually.”
Buffett remains bullish long-term for the economy. “We have a wonderful economy over time,” he says.
We do come out of recessions, Buffett says.
“The biggest thing that brings us out of them is the fact that we have a system that works very well over time, even though it gets gummed up periodically.”
Buffett’s Berkshire Hathaway has $20 billion in cash and is "perfectly willing to make a deal that's compelling," he told reporters at the end of the company’s annual meeting Sunday.
The Oracle of Omaha doesn’t have anything specific in mind, and neither he nor Berkshire’s Vice Chairman Charlie Munger would reveal which sectors of the economy or regions of the country interest them most.
(I usually wouldn't post a piece from NEWSMAX.com since it is a conservative site, but Buffet is a strong Obama supporter and a source and force unto himself. It doesn't matter if one reads it on a bathroom wall, Buffet's words count. I would add with some hubris (sorry) that his assessment looks kinda like what I have been saying. The economy will recover, but only after a long spell of high inflation and slow growth. As the value of the dollar falls, investments will lose value because those funds will represent less spending power. OPINION: As expected, the massive spending will bulldoze the economy into the right shape,but at a cost to future generations that may make our inheritors mad as hell. I won't be here,so I really don't give a shit. My SSA benefit will quickly top $2000/mo. with COLA increases and I have no investments to worry about. My complaints about this admin have been about the wicked (!) deceptions foisted on the American people. Change? Bullshit! These methods of recovery have been around since modern industrial economies first formed and have led to disasters for sattelite economies not able to force other economies to work in tandem. We will get co-operation from the euros,Chinese,and others because we are the only big brother they have and they know they better damn well go with the flow. As the dollar falls, they will experience internal pressure to tariff incoming American goods so as to slow the outflow of their "good" currency. They won't do that. They will gnash their teeth and ride the ride until our bad debt has been spread worldwide. Tra la la. Screw them; buncha backstabbers. The ridiculous program spending in the omnibus budget bill is reversible and will be negated once the American people wake up and "throw the bums out". I can't blame those who voted for Obama though, the Repubs had totally lost credibility.
