Buffett, ignorant on economic theory?

[Daal]

Letter to shareholders, this in 1984.
"We believe substantial
inflation lies ahead, although we have no idea what the average
rate will turn out to be. Furthermore, we think there is a
small, but not insignificant, chance of runaway inflation."

"Such a possibility may seem absurd, considering the rate to
which inflation has dropped. But we believe that present fiscal
policy - featuring a huge deficit - is both extremely dangerous
and difficult to reverse. (So far, most politicians in both
parties have followed Charlie Brown’s advice: “No problem is so
big that it can’t be run away from.”) Without a reversal, high
rates of inflation may be delayed (perhaps for a long time), but
will not be avoided. If high rates materialize, they bring with
them the potential for a runaway upward spiral."

Maybe he forgot friedman demonstrating that inflation is a monetary problem. plus a budget defict reversal would produce inflation?wtf. Its no wonder on why his prediction failed
Maybe thats why hes voting for hillary. go ahead tell me how rich he is, he is great at picking companies but man is this guy wrong on other issues

 

[nazzdack]

Buffett is rich, he's good at picking companies and he's wrong on other issues. He has more dollars than sense. If it were the other way around, nobody would pay attention to him.

 

[andread]

http://en.wikipedia.org/wiki/Deficit_spending

There is, however, a danger that deficit spending may create inflation -- or encourage existing inflation to persist

I guess it's a good explanation

 

[bsivia]

he meant that budget deficit would cause inflation just like what happened to the Asian countries in the 1990's. Deficit goes up, but this is mostly financed by foreigners, IF this money stops coming it so would lead to a upward spiral.

IMO buffet knows a lot about economics, and more so about practical economics, being a value investor and a rational being he just very very cautious. If you read about most of his investments, economics models is mostly what it is...

 

[thecalip]

Economic theory is a joke. That's why you don't see too many rich economists.

 

[andread]

Quote from thecalip:

Economic theory is a joke. That's why you don't see too many rich economists.

I like this point of view

 

[Daal]

Quote from andread:

http://en.wikipedia.org/wiki/Deficit_spending

There is, however, a danger that deficit spending may create inflation -- or encourage existing inflation to persist

I guess it's a good explanation

Yeah except its wrong. the government would be spending money from whom?the taxpayers, therefore consumer spending would be lower in order to fuel the government spending. on net thats a wash.

yeah the consumer might save some of the money and not spend it whereas the government will spend it all but thats a very small diference on the total $ spent at the end specially in the US where people never saved much.

the 'fiscal policy can help/hurt inflation' is an old excuse used by central banks to blame somebody else for inflation

 

[Daal]

Quote from bsivia:

he meant that budget deficit would cause inflation just like what happened to the Asian countries in the 1990's. Deficit goes up, but this is mostly financed by foreigners, IF this money stops coming it so would lead to a upward spiral.

no. If he were referring to this he would say current account deficit or trade deficit. The budget deficit had a good deal of dosmetic financing anyway(not that it would make a difference).
Plus currency weakness 'inflation' is not true inflation(certainly not the kind that leads to doom scenarios he mentioned)its only temporary like friedman shows you stop the printing press and there can be no inflation, period

 

[PARACLESE]

the printing press yes. the printing press. what happens when they find the fiat currency unacceptable? they close off borders and do business with themselves? alot of pretty boy americans will have to go out and get their hands dirty and actually work at bringing some bread home. Watch how quick we look for help from the natives in helping us become more efficient. Ironic isnt it? The earth and the universe is so beautiful. One massive zero-sum game with specialists behind the scenes in the spirit world to make sure the influx is kept in flux. In preamerican days no man was too good for work. If you came on one of the first ships and you were caught slacking, regardless of race, you were whipped and caned and kept without food. so be it. I cannot stand laziness. It is what we owe all of this mess we are in to. Lazy and corrupt people. You do not want me in office. I would put all of these corrupt people in community service. Hard labor. Let them keep their fortunes yes. But escape brutal work, hell no. Think of how they would treat their money once they spend a year or two or three plowing the fields, building wind farms, for little to no money and eating like commoners? humbling experience. rehabiltation as I see it. lol VIVE NAPOLEON!! bring on the meritocracy. People are paid based on performance and contribution. This is true capitalism, one without lies.

 

[h hubbins]

Buffet went to Wharton and then got a masters in econ. @ Columbia. So there's a rich economist for you. Warren Buffet.

As for the original inflation prediction by Buffet- the government used to be able to inflate in order to pay the bills. Once taxes for individuals were indexed to inflation that became much harder so the inflation never materialized.

It is much harder to predict macroeconmic events than it is to forecast a single company's earnings. Buffet is better at the later but has also made some decent money on macro plays. Most recently his currency trade netted him a ton of $$$ after taking lots of heat.