Tags: Buffett | Bernanke | fed | QE3

Buffett: I Support Bernanke, Would Probably Oppose QE3

Wednesday, 24 Oct 2012 09:50 AM

Legendary investor Warren Buffett says he supports Fed Chairman Ben Bernanke as head of the Federal Reserve though if he were a voting member on the Fed's monetary committee, he would probably disagree with a third round of stimulus known as quantitative easing (QE3).

The Fed has announced it will spend $40 billion a month buying mortgage-backed securities from banks to pump liquidity into the financial system in a way that pushes down interest rates across the broader economy to spur recovery, a monetary policy measure known as quantitative easing.

Side effects to such a policy tool include a weaker dollar, rising stock and commodity prices and mounting inflationary pressures.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

The move comes in wake of two previous rounds of quantitative easing rolled out under Bernanke that pumped a combined $2.3 trillion in inflation-fueling liquidity into the economy on top of other stimulus tools.

"I would say this. I would listen very carefully to Bernanke, but my instincts would probably be to go the other direction. But I would listen to his arguments," Buffett told CNBC, when asked if would have voted for further easing.

"It's much easier to acquire $2.7 trillion of securities than it will be to unwind that operation, and you can expand it indefinitely. If he wanted QE3 to be $100 billion a month, he's the one guy that can do it," the Berkshire Hathaway chief executive officer said.

While flooding the financial system with liquidity to jolt the economy may be relatively easy to do, mopping that excess money supply up may be a tougher task once recovery gains steam.

"He has unlimited buying power. Unlimited selling power could be a little different. You need some cooperation on that," Buffett said.

News reports have surfaced that Bernanke may step down after his term ends in January of 2014 regardless of who wins the upcoming presidential elections.

Republican presidential candidate Mitt Romney has suggested he would oppose Bernanke staying at the Fed.

"I think Bernanke has done an absolutely superb job," Buffett said, especially his quick decisions to prop up the economy during the 2008 financial crisis.

"If Ben Bernanke hadn't been there in 2008, I'm not sure where we would be now. I have enormous respect for him."

"I would never bet against him. I still would say that I get a little worried about continuously expanding the balance sheet of the Fed."

Most economists feel the Fed will stick with a wait-and-see approach to monetary policy in the near future and announce no major changes to interest rate or other stimulus tools.

"They have done enough right now. There is no reason to do any more at the moment," said Diane Swonk, chief economist at Mesirow Financial, according to the Associated Press.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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