Warren Buffett, the famous investor and CEO of Berkshire Hathaway, talked with Charlie Rose in 2006 about the economy, inflation, oil prices, and the dollar. Buffett, who now has over $130 billion and decades of investing experience, had many valuable insights to share even then.
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When asked about the state of the economy, Buffett remarked, "Well, the economy still is pretty good as we sit and talk today." He acknowledged that people have extracted significant equity from their homes in recent years, which has boosted the economy. Despite existing problems, he noted that these issues were not evident in business then.
However, as we all know, that didn't last long, as the Great Recession happened only one or two years later.
When asked if he worries about inflation, Buffett said, "Inflation is never gone; it's always in remission. It's something that is human-made, and governments can create it." Still, he warned, "anytime you have governments, you have to worry about inflation." It often seems a preferable alternative to other immediate issues.
Buffett also admitted he's not great at predicting oil prices, but he did talk about the delicate balance of global oil supply and demand. He said, "We're using about 84 million barrels of oil daily. If something disrupts three or four million barrels a day of supply, like something happening in Iran perhaps, the marginal barrel will go crazy." He also mentioned that we have less backup oil supply now than we did 15 or 20 years ago, which makes the market more unpredictable.
Lastly, Buffett predicted a decline in the dollar’s value over time, attributing it to the country’s trade policies. “The policies we’re following as a country will cause the dollar, in my view, to decline. Primarily our trade deficit,” he said. He explained that consuming more than the country produces results in trading assets for foreign goods, effectively “giving away pieces of the farm.”
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“We give them IOUs of the government, we give them dollars initially, and then they can convert those into other assets in this country. So, we’re trading away assets to over-consume,” stated Buffett.
Fast forward to today, and inflation is still a big issue around the world. The COVID-19 pandemic, supply chain problems, and global tensions have all pushed prices up. Governments have tried different things like stimulus packages and changing interest rates to control inflation. However, the delicate balance Buffett talks about is still important.
Central banks everywhere are now trying to control inflation without slowing down the economy too much, showing that Buffett was right about inflation being a constant, human-made issue.
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