When does sage investor Warren Buffett predict higher inflation?
*Reuters, by Jonathan Stempel, March 9, 2009
“Buffett says economy fell off cliff”
“On Monday, he said the country still faces an ‘economic Pearl Harbor,’ experiencing a ‘close to the worst-case’ scenario of falling business activity and rising unemployment.
He called on Democrats and Republican policymakers to set aside partisan differences and unite under the leadership of President Barack Obama to restore confidence in the banking system, fix the economy and communicate their efforts better.
‘People are confused and scared,’ he said. ‘People can’t be worried about banks, and a lot of them are.’
Buffett said Americans, including himself, did not predict the severity of home price declines, which led to problems with securitizations and other debt whose value depended on home prices continuing to rise, or at least not plummet.
‘It was like some kids saying the emperor has no clothes, and then after he says that, he says now that the emperor doesn’t have any underwear either,’ Buffett said.
RECOVERY COULD TRIGGER MORE INFLATION
Berkshire’s own stock has fallen by about half since September, with growth in some units such as auto insurer Geico Corp offset by weakness elsewhere, including jewelry retailers that Buffett said have ‘gotten killed.’
He said Berkshire will write less catastrophe insurance this year after investing roughly one-third of its available cash in high-yield securities issued by General Electric Co, Goldman Sachs Group Inc and other companies.
Maintaining his long-term optimism, Buffett said that while the economy ‘can’t turn around on a dime,’ he believes that ‘five years from now, I can guarantee you that the machine will be running fine.’
He added, ‘We do have the greatest economic machine that man has ever created.’
But he said an economic rebound could trigger higher inflation once demand rebounds. ‘In economics there is no free lunch,’ he said. ‘We are going to attempt to have a lunch that to some extent we’re going to pay for later.’ “
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