Warren Buffett says economy recovering, but government debt a threat

Billionaire investment guru Warren Buffett says the United States economy is now out of the “emergency room” but warns that spiraling government debt could lead to inflation and a weakening of the US dollar’s purchasing power.

Buffett’s comments, contained in an opinion piece in the New York Times, include praise for the US Government’s response to last year’s financial crisis, which he says left the financial system “on the brink of a collapse that threatened a depression”.

“The United States economy is now out of the emergency room and appears to be on a slow path to recovery,” Buffett writes.

“But enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects. For now, most of those effects are invisible and could indeed remain latent for a long time. Still, their threat may be as ominous as that posed by the financial crisis itself.”

Buffett argues that the US Government’s mushrooming budget deficit (“a staggering $1.8 trillion”) and publically-held debt (set to hit 56% of GDP) have put the US in “uncharted territory”.

He says US legislators will need to make some hard decisions about turning the deficit around and says taxes and spending cuts will be needed in addition to the boost given by the revived economy. To not raise taxes or cut spending will lead to inflation.

“We don’t want our country to evolve into the banana-republic economy,” Buffett writes.

“Our immediate problem is to get our country back on its feet and flourishing -‘whatever it takes’ still makes sense. Once recovery is gained, however, Congress must end the rise in the debt-to-GDP ratio and keep our growth in obligations in line with our growth in resources.

“Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt.”