Thursday, August 20, 2009

Inflation a Real Threat: Warren Buffett & Peter Schiff

Buffett in his latest New York Time Op-Ed says that the federal debt poses a serious risk to our economy. He writes:

Legislators will correctly perceive that either raising taxes or cutting expenditures will threaten their re-election. To avoid this fate, they can opt for high rates of inflation, which never require a recorded vote and cannot be attributed to a specific action that any elected official takes. In fact, John Maynard Keynes long ago laid out a road map for political survival amid an economic disaster of just this sort: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens*.... The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

He also goes on to say:

Our immediate problem is to get our country back on its feet and flourishing — “whatever it takes” still makes sense. Once recovery is gained, however, Congress must end the rise in the debt-to-G.D.P. ratio and keep our growth in obligations in line with our growth in resources.

Really? I listen to Buffett, but just don't get his logic sometimes. In the US, debts are way to high and demand is down, it cannot come back anytime soon because of consumer debt and unemployment. Like Schiff says we need a natural correction.

This whole Keynesian economics has to stop and it has to stop now! Why can people not see what is happening all around us? Why can they not think for themselves and not listen to the media? I ask anyone seriously interested in the wealth of this nation and the wealth of yourself to go and study the Austrian School of economic principles.

*actually one thing I agree with John M Keynes

1 comment:

  1. I suppose Buffett probably only understands the stock market and less the economy. The stock market needs to have nothing to do with the economy at all. So Buffett understands nominal values and that's what more spending and inflation can affect. So of course he sees a recovery in terms of more spending and inflation.

    On the other hand, Schiff has a better sense of basic economics and knows the difference between real and nominal assets. While I don't subscribe to any black and white views of the mess, it's clear that it is not a problem merely of nominal values and price manipulations and creative accounting and adding zeroes to the balance sheets.

    The US needs to bring more real goods to the world table. It needs to produce cars maybe, yes, but not for its own citizens who already have enough cars - it needs to export them! And find other things to export and export more of them.