Uncle Warren’s Inflation Warning

The comments below are an edited and abridged synopsis of an article by Jesse Felder

Warren Buffett recently published his latest letter to shareholders of Berkshire Hathaway and Felder encourages reading  it, along with the 45 that preceded it. They are a wealth of investment knowledge and business wisdom you won’t find anywhere else. What’s more, they are free.

Uncle Warren’s Inflation Warning - BullionBuzz - Nick's Top Six
Inflation is like toothpaste. Despite being impossible man is trying to get it back in again. (Used clipping mask)

In the latest letter, Buffett addressed stock buybacks and the media. Far more interesting, however, was a section entitled “Some Surprising Facts About Federal Taxes.” Here is a particularly poignant passage:

“During the decade ending in 2021, the United States Treasury received about $32.3 trillion in taxes while it spent $43.9 trillion. Though economists, politicians and many of the public have opinions about the consequences of that huge imbalance, Charlie and I plead ignorance and firmly believe that near-term economic and market forecasts are worse than useless. Our job is to manage Berkshire’s operations and finances in a manner that will achieve an acceptable result over time and that will preserve the company’s unmatched staying power when financial panics or severe worldwide recessions occur. Berkshire also offers some modest protection from runaway inflation, but this attribute is far from perfect. Huge and entrenched fiscal deficits have consequences.”

Buffett knows that his letter is read not only by shareholders but by a wide audience focused on areas both within and without the markets. For this reason, he is mindful of the topics he addresses and the words he uses. For him to use a phrase like “runaway inflation” in the context of “huge and entrenched fiscal deficits” represents a warning to both investors and politicians alike.

Over three years ago, before today’s inflation problem began, Buffett and his partner Charlie Munger warned that the combination of large fiscal deficits paired with massive money printing could lead to a situation where “you end up with something like Venezuela.” Obviously, these concerns have not been allayed by the fact that the deficit has grown far wider while the Fed has stayed doggedly behind the curve of the biggest inflation problem in decades.

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