The Greenback Effect

Warren Buffett wrote a great Op-Ed in the New York Times today. In the piece, Buffett argues that the current economic stimulus is necessary to get our economy running smoothly.  However, Buffett also states that our current rate of spending is unsustainable and that once the economy begins to recover congress must stop the printing presses.  Here are some of the more important highlights…

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

“An increase in federal debt can be financed in three ways: borrowing from foreigners, borrowing from our own citizens or, through a roundabout process, printing money.”

“Legislators will correctly perceive that either raising taxes or cutting expenditures will threaten their re-election. To avoid this fate, they can opt for high rates of inflation, which never require a recorded vote and cannot be attributed to a specific action that any elected official takes.”

“Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar’s destiny lies with Congress.”

I’m really happy to see that Mr. Buffett is taking the time to write about possible inflation problem. Usually the only people I see openly defending the dollar are Ron Paul and Larry Kudlow.  Hopefully, Buffett’s warning will carry a little more weight than the other dollar defenders.