Wednesday, August 19, 2009

Warren Buffett On Inflation

by Aussie 0 comments

Warren Buffett has written a very interesting and timely article in the New York Times today. For those unfamiliar with Warren Buffett, he is one of the world's greatest investors, having made his fortune in the stock market. He now runs the corporate conglomerate Berkshire Hathaway.

In the article, Buffett compares the current budget deficit to those of years gone by. As a percentage of GDP it's twice the previous non-wartime record. It gone up to 13% where the previous high was 6%.

He also points out that US net debt has risen from 41% to 56% of GDP and questions at what point the country's credit rating will be put at risk. Sooner or later other countries will perceive the United States as credit risk if debt levels keep rising.

Lastly Buffett discusses the risk of rising inflation as a result of all this. All of this debt must be financed and with the prospect of the Government printing more money, inflation may soon follow.

From an investor's point of view, it begs the question how do we protect our investments from inflation? I will write more about this in the future.

Click the following link to read Warren Buffett's op-ed piece entitled The Greenback Effect.

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