Billionaire Warren Buffett said Wednesday it would be idiocy for the nation’s leaders to allow the United States to default on its bills.
Buffett is a renowned investor who leads the Berkshire Hathaway conglomerate. He appeared Wednesday on CNBC.
Buffett said he thinks it would be absurd for American politicians to do anything to damage the country’s reputation for paying its bills that has been established over the past 237 years.
“I don’t think it will happen, but if it does happen, it’s a pure act of idiocy,” Buffett said about the possibility of default.
Congressional leaders were still working Wednesday morning on a deal to end the partial government shutdown and prevent default. Buffett said both political parties should agree not to use the debt limit as a bargaining chip in the future because it is “a political weapon of mass destruction.”
But Buffett said he hasn’t changed Berkshire’s spending because of the budget battle, and it didn’t factor in his decision to complete a $1.1 billion acquisition.
Berkshire said Wednesday it will buy the beverage dispenser business from Britain’s IMI PLC on behalf of its Marmon Group subsidiary.
“I wouldn’t have changed the price a penny based on what’s happened,” Buffett said.
The deal is relatively small by Berkshire’s standards. The company spent $12.25 billion earlier this year to acquire half of ketchup maker H.J. Heinz Co. in a $23.3 billion deal. Buffett said Wednesday that another similar-sized deal recently got away from Berkshire.
Buffett also said he hasn’t yet seen an effect on consumer spending in the reports he gets from Berkshire subsidiaries like its furniture and jewelry stores, but that would change if the government defaults.
Buffett said he hasn’t sold off any of Berkshire’s short-term treasury bills because of the budget battle. He said he’s not worried about the government paying those.
Berkshire Hathaway Inc. owns about 80 subsidiaries, including clothing, brick, carpet and paint firms. Its insurance and utility businesses typically account for more than half of the company’s net income. It also has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co.
(AP)
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2 Responses
A default involving ability to pay, but political “gridlock” would not only show the strength of rule of law and respect for the constitution, but would cause markets to jump up and down and creatge buying opportunities for those such as Mr. Buffett who “buy low, sell high” and therefore need to find things to buy at artificially depressed prices. Only a fool will sell his US bonds because due to the current crisis, and Mr. Buffett will gladly buy those bonds at a significant discount so he can reap the profits by reselling them.
The real threat will occur in the foreseeable future when the rising deficits lead to a national debt which can be financed only by punishingly high tax rates, interest rates, or massive printing of money resulting in high inflation. This will cause the US bonds to lose real value, and the US to lose its status as the world’s reserve currency. The Republicans (“Tea Party” ones, not the “Wall Street” ones) are addressing this threat, and if they fail, the long term future economic propspects of the US will be sharply reduced.
So, No. 1, you have revealed Mr. Buffett’s secret to investment success – buy low, sell high. I guess that means we can all become millionaire investors like Mr. Buffett.
And what, exactly, is “artificial” about the risk of default on US treasury securities if the government cannot continue its practice of refinancing its debt with new borrowings?
And you just insulted me for my recent sale of US treasury obligations, because I need to pay for a wedding. I did not know I was a fool for doing so, until you told me. Thanks.
You evidently do not understand that there are lots of reasons people buy and sell US treasury obligations, and one of them used to be that they are highly liquid and (used to) carry less risk of default than any other investment.