Warren Buffett Warns Of Problems With Inflation, Dollar
Berkshire Hathaway CEO Warren Buffett took time to speak to Bloomberg’s Betty Liu yesterday just prior to his lunch with Zhao Danyang, the Chinese hedge fund manager who paid more than $2.11 million for the opportunity to dine with him. The conversation focused on the U.S. economy, with Buffett saying:
America will go on to set new records, and your children will live better than you, and your grandchildren will live better than your children. This country works. I mean, it has faced all kinds of problems in the past. We had the Great Depression, we had world wars, and all of that, and we just keep marching forward over time. But we do have these— it gets stalled occasionally, and we’re in one of those very serious stalls now. But, we’ll come out of it. I don’t know when we’ll come out of it…
We went crazy on leverage in this country. And, we’ve got to reign it in. And, it’s a slow process deleveraging over a leveraged economy. Including the consumer’s been overleveraged.
Liu asked the world’s second richest man how long he thought the deleveraging process and recovery would take. Buffett replied:
It can take a while. I have no idea when it will— it hasn’t turned yet. It hasn’t turned yet. There’s no telling how long it will take. It will happen though. We’ll cure it…
We’re going to have more unemployment. The recovery really hasn’t gotten going. It will, I want to emphasize that… It’s very, very likely to go above 10%, and there’s no telling how much above that it will go.
Finally, the Bloomberg reporter asked the famous investor if he thought it would be prudent to issue a second stimulus package. Buffett responded:
Well, I think you may very well have to do it… So far, it looks like we’re going to need more medicine, not less.
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FOX Business Network’s Liz Claman also got the chance to speak to Warren Buffett at the charity luncheon. The following excerpts are from a FOX Business Network transcript of the conversation:
CLAMAN: We’ve got the paparazzi here. Everybody wants to see you. Not bad, especially because, in a time like this, the guidance that people want and crave from you, particularly Zhao, who will be having lunch with you, they all want to know, what do you see for the global economy, first? And then we’ll get to America.
BUFFETT: Yes. Well, it’s going to be tough for a while. I mean, what’s going on in this country is going on in much of the world. Actually, China is doing better, but much of the world is in the same boat we are, and right now it’s a boat that’s in rough seas.
CLAMAN: Do you see inflation somewhere on the horizon? And I ask that because, of course, everybody says we’ve been printing a lot of money and spending so much money, and that it is somehow inevitable.
BUFFETT: Liz, what we’re doing raises the profitability significantly of very significant inflation down the road. Not this year, next year, maybe the year after, but we have taken actions, and they were appropriate actions, to fight the war we were in that started with a vengeance last September. In taking those actions, we’ve applied medicine dosages to a patient that’s never been done before except in wartime. And it will have consequences. And nobody knows exactly what they will be and nobody knows how effective we will be draining a system that we’ve been flooding. But the probability of significant inflation has really gone up.
CLAMAN: And you look at the U.S. dollar, for example, which has been behaving a little squirrelly. But you talk to a lot of people who watch this and they say the dollar will eventually lose so much of its value because of this.
BUFFETT: Well, it won’t necessarily lose value against the euro or the pound, because they’re going through the same thing. But in terms of its real purchasing power, I think it’s sure to lose some value over time, and the probability of it losing significant value in a 10-year time frame has been increased a lot.
CLAMAN: You and I talked in May, and you said that you issue, your companies issued some 50 percent of all carpet in the U.S. And so you have very much links to the housing market. Any sign that you’re seeing an uptick or some sign of life?
BUFFETT: I get the figures on carpet every day. Every single day I get the orders received, shipments, everything. No. The answer is that we have not bounced, no. We will at some point, but it has not happened to this day.
This morning, Bloomberg’s Le-Min Lim talked about the lunch meeting with Warren Buffett and the Chinese investor. Lim wrote:
Warren Buffett said that China’s growth will outstrip the U.S.’s and that Bill Gates’s charity, to which he pledged most of his fortune, is best able to put his money to good use, according to Zhao Danyang, the Chinese hedge-fund manager who paid more than $2.11 million to lunch with him.
Over a 3 1/2-hour meal of steak and seafood in Manhattan that began at noon yesterday, the chairman of Berkshire Hathaway Inc. told Zhao that the general manager of Hong Kong-based Pureheart Asset Management Co. is lucky to be living in an era of Chinese ascendancy, comparing it with the benefits he gleaned from the U.S.’s strength in the past few decades. Buffett, 78, said he’s bullish on China’s future, though the U.S. wouldn’t fare poorly either despite slower growth, Zhao said.
Sources:
Warren Buffett Interview
Bloomberg, June 24, 2009
Warren Buffett Interview
FOX Business, June 24, 2009
“Buffett Says China Growth to Trump U.S.’s, Lauds Gates Charity”
Le-Min Lim
Bloomberg, June 25, 2009
