WARREN BUFFETT: Station three?
AUDIENCE MEMBER: Mr. Buffett and Mr. Munger, hi.
WARREN BUFFETT: Hi.
AUDIENCE MEMBER: My name is Daphne. I’m 13 years old, and this is my sixth annual Berkshire Hathaway Shareholder’s Meeting. (APPLAUSE) And I’ve had the privilege to ask you both questions in years past.
My question for you today is the following. As you know, the U.S. national debt is currently at an estimated $31 trillion, making up about 125% of the U.S. GDP.
In the meantime, over the past few years, the Federal Reserve has telegraphed that they intend to monetize the debt by printing trillions of dollars, even as they insist that they’re fighting inflation. Already other major economies in the world, such as China, Saudi Arabia, and Brazil are moving away from the dollar in anticipation of this.
My question is are we likely to face a time in the future when the U.S. dollar is no longer the global reserve currency? How is Berkshire prepared for this possibility? And what can we do as American citizens to attempt to shelter ourselves from what’s beginning to look like the beginnings of de-dollarization?
WARREN BUFFETT: Well, (APPLAUSE) I should ask you to come up here and answer some questions. I mean, (LAUGHTER) maybe. It’s very interesting, I mean, we are the reserve currency. I see no option for any other currency to be the reserve currency. And I think that nobody understands the situation better than Jay Powell.
And but he’s not in control of fiscal policy, and every now and then he drops a few hints. And there was no question that when the pandemic broke out, I mean, it was a semi-war-like situation. But nobody knows how far you can go with a paper currency before it gets out of control.
If, and particularly if you’re the world’s reserve currency, nobody knows the answer to that. And you don’t want to try and pick out the point at where it does become a problem, because then it’s all over. And I think we should be very careful.
I mean, you know, we all learned Keynesianism and we applied it in World War II to the advantage of the country, and we did everything we could to prevent inflation during the war. And then the war ended in August of ’45 and I think in January of ’46, and I’m not giving you exact figures at all now, but in January of ’46 I think the rate of inflation was at, you know, something like 1% or thereabouts.
And by the end of the year, I think it was at, like, 15%. And again, I’m doing this from long memories. But it’s easy for America to do it a lot, but if we do too much it’s very hard to see how you recover once you let the genie out of the bottle.
And people lose faith in the currency. And they behave in an entirely different manner than they do when they feel that if they put some money in the bank or have a pension plan, or whatever it may be, that they’re going to get to have something with roughly equal purchasing power.
And it just changes the (UNINTEL). And all kinds of things can happen then. And I can’t predict them and nobody else can predict them. But I do know they aren’t good. And we will see, and I do this as, you know, I’ve voted for both parties. And it’s not limited to politicians of either party or anything of the sort.
But people take positions, some of them understand what they’re doing, some of them don’t understand what they’re doing. And, you know, if they put me on some medical board, I don’t understand what I’m doing. You know, there’s nothing wrong with the fact that you can’t master everything.
We can’t all be Isaac Newton. But you can’t go around pretending you do or making decisions on it. And we are not as well off in relation to curbing inflation expectations, which become self-fulfilling, then we are not as well off as we were earlier.
And Berkshire is better prepared than most investments for that kind of a period. And, I mean, I said this in the annual report, but we aren’t perfectly prepared, because there’s no way to perfectly prepare. You don’t know what course of action will occur.
And it’s a very political decision now. It’s a tribal decision to some degree. And you hope for leadership that actually will do something, recognizes the problem. And America’s an incredible society, rich, you know? We’ve got everything going for us. But that doesn’t mean we can just print money indefinitely as debt. And it’ll be interesting to see how it turns out. Charlie?
CHARLIE MUNGER: Well, at some point printing money to buy votes will be counterproductive.
WARREN BUFFETT: Yup.
CHARLIE MUNGER: And we don’t know (APPLAUSE) exactly where that comes. And if something is going to be dangerous and unproductive, you ought to keep it a fair distance away. Now, if you have a culture that is exceptionally strong, like Japan, they have done some strange things there.
WARREN BUFFETT: But they couldn’t have been a reserve currency.
CHARLIE MUNGER: No, of course not. And, but Japan bought back most of the national debt and most of the, a lot of the common stocks and debt. Just the federal reserve owns practically everything in Japan, and the country’s working. It’s had 30 years of economic stasis, but it’s not going to hell. I really admire Japan. And, but I don’t think we should try and imitate it. I don’t think we’re as good as Japan at taking —
WARREN BUFFETT: They have a cohesive culture, and we don’t, Charlie. We —
CHARLIE MUNGER: Yeah, that’s exactly right.
WARREN BUFFETT: Yeah.
CHARLIE MUNGER: In Japan, everybody’s supposed to suck it up and cope, and in America we complain. (LAUGHTER)
WARREN BUFFETT: So, I hope you come next year with a tougher question. (LAUGHTER) But — and thank you.
And I predict, I would love to be being born again today in the United States. I mean, we can do a lot of dumb things and get away with it. We can’t do an unlimited number.
There are people who care about that. And, you know, you have to be willing to be extraordinarily unpopular. I mean, Paul Volcker, there are other Federal Reserve chairpeople that would not have done what he did. It’s just, it’s too uncomfortable.
And there used to be a politician in Nebraska, and if you asked him some really tough question like, you know, how do you stand on abortion, he would look you right in the eye and he’d say, “I’m all right on that one.” And then he’d move next.
Well, that’s what people have done basically on inflation. And they, one way or another, they say, “I’m all right on that,” and then they don’t really think about what the consequences of their actions could be, particularly. And it’s so much fun to, if there’s 435 of you, to just be one of 435 instead of being the person actually responsible.
Anyway, I am still, next to the question of two superpowers and when you get in to really destroying a planet, destroying the reserve currency of the world when there’s really no substitute, and forget about all the toys, you know, I mean, it’s a joke to think of any tokens or (LAUGH) that sort of madness.
But it’s also madness to just keep printing money, yeah. And we know how to do it, and we actually came from a money-printing economy in World War II, which was required. And we suffered significant inflation, the price level — I mean, there’s a million ways to judge it — but it’s maybe ten times what it was then or something like that.
Well, that’s getting close to the edge of where you don’t want to hold dollars anymore, you want to hold something else. You want to hold real estate; you want to hold interest in a business. There’s a lot of good, and your best defense is your own earning power.
If you’re the best doctor in town, if you’re the best lawyer in town, if you’re the best teacher in town, or even if you’re the tenth best, you’re going to make a good living. You know, the economy is productive. And you will succeed with your talents. But you won’t succeed by hoarding dollars, you’ll just succeed by the fact that your value to the community, which is a rich community overall, is sustained. And so the best investment is always in yourself. That’s the answer I would give you.
CHARLIE MUNGER: Well, we have a situation where we’ve learned to print money in gobs, and a big chunk of our young people go right into wealth management. (LAUGHTER) This is —
WARREN BUFFETT: Like we did. (LAUGH)
CHARLIE MUNGER: Yeah, like we did, like we did. Yes, we’re bad examples.
And I want to say that I didn’t realize wealth management was going to get so big when I went into it. And I want to apologize for what’s happened. (LAUGHTER)
WARREN BUFFETT: Yeah, well. Anyway, you did well. (LAUGH)
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