Not Lifting Debt Ceiling Would Be 'Dumb,' Buffett Says

Image: Not Lifting Debt Ceiling Would Be 'Dumb,' Buffett Says

Friday, 20 Sep 2013 10:35 AM

 

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Billionaire investor Warren Buffett said that politicians not lifting the U.S. debt ceiling would be "pretty damn dumb" and viewed a prolonged political standoff on the issue as "disturbing."

"The market is not going to fall apart," Buffett said in an interview aired on CNBC on Friday, because markets will only expect politicians to act irrationally for a certain length of time.

Still, he called the possibility of such a debt standoff "disturbing."

Editor’s Note: Obama Donor Banned This Message (Shocking)

Some Republican legislators are calling for concessions such as defunding President Barack Obama's signature health care law in exchange for lifting the debt ceiling.

Buffett's Berkshire Hathaway Inc owns more than 80 businesses in such areas as insurance, chemicals, railroads and clothing, and has well more than $130 billion of equity and fixed income investments.

U.S. politicians look headed for a prolonged squabble over raising the U.S. debt ceiling to allow the government to keep borrowing money to pay its bills. That decision is expected to come to a head later this year.

A similar impasse in 2011 cost the United States its triple-A credit rating from Standard and Poor's.

Thursday at an event at Georgetown University, Buffett said that the Federal Reserve's eventual exit from its monthly bond-buying program will carry unforeseen risks.

"We are in an experiment which hasn't really been tried before," he said, adding that "buying securities is usually easier than selling securities."

Berkshire owns more than 80 businesses in such areas as insurance, chemicals, railroads and clothing, and has more than $130 billion of equity and fixed income investments.

Some of its money went to Bank of America in August 2011, when Buffett announced a surprise $5 billion investment in the second-largest U.S. bank, which has been plagued by bad mortgages and legal liabilities mainly tied to the former Countrywide Financial Corp.

The investment included preferred shares with a 6 percent dividend, plus warrants to buy 700 million shares at about $7.14 per share, and has given Berkshire a paper profit of several billion dollars because the bank's shares have doubled.

Brian Moynihan, chief executive of Bank of America Corp., said the bank has contracted in size and put many regulatory issues behind it, leaving it to focus on how best to grow in a slow-growth economy.

"You have an economy which we see very constructive, growing at 1.5 to 2 percent," he said. "We don't see a lot of downside risk... Until unemployment is down, (Fed Chairman Ben Bernanke) has to keep this economy going in the right direction."

One side effect of the economic stimulus has been low interest rates, which Buffett called a "terribly important" variable in determining asset prices.

With major stock indexes at or near record highs, it has been harder for the 83-year-old Buffett, the second-richest American, to pursue his value investing strategy at Berkshire.

Stocks "were very cheap five years ago, ridiculously cheap, and that has been corrected," Buffett said. "They're probably more or less fairly priced now... We're having a hard time finding things to buy."

Buffett had invested $5 billion in preferred stock of Goldman Sachs Group Inc. and $3 billion in General Electric Co. preferred stock at the height of the 2008 financial crisis. That gave him a reputation as a possible lender of last resort during times of stress.

Editor’s Note: Obama Donor Banned This Message (Shocking)

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