It is said that in economics, there are no free lunches. And where better to apply that aphorism than the recent spending spree of the US government. Warren Buffett too has made numerous grim warnings that efforts such as the Treasury’s US$ 700 bn Troubled Asset Relief Program and the US$ 787 bn fiscal stimulus plan passed this year by Congress (US) will have to be paid for, one way or another. And with political leaders in the US showing little inclination to raise taxes, one sure way to pay for excess spending is to inflate the value of the currency says Buffett. He is of the belief that inflation is sure to rear its ugly ahead in a big way in the near future. And as per Buffett, the biggest losers in a surge of inflation would include holders of bonds and other fixed-income assets.
Speaking at his company Berkshire’s shareholders’ annual meet that was attended by around 35,000 people, Buffett along with his partner Charlie Munger also said that the most important lessons of the recent financial turmoil are that companies should borrow less and build a system that imposes severe disincentives for failure. The two also said most of America’s biggest banks are not too big to fail, but consumers shouldn’t be worried about bank failures because of protections built into the system. Buffett jokingly remarked that if the system were set up so that an executive would be shot if the company fails, then the company would definitely borrow less.
On being asked whom to lay the blame of the crisis, Buffett aptly replied – “I think that virtually everybody associated with the financial world contributed to it. Some of it stemmed from greed, some from stupidity, some from people saying the other guy was doing it.”
On the US economy, he said, “The economy may have suffered a huge jolt, but when the patient gets going again, he’ll be setting tremendous records. That patient is a terrific athlete.”