Warren Buffett says worry about fiscal deficit, not outsized US debt

Warren Buffett compared the situation to the 1980s when inflation was at 9.1 percent and how Paul Volcker’s policies, as the US Federal Reserve chairperson, helped curb it.

Billionaire investor Warren Buffett sought to turn attention from the rising US debt to the fiscal deficit, which he said could be a trouble area, since it is not in control of the Fed chair Jerome Powell. “I don’t worry about the quantity of debt, I worry about the fiscal deficit,” Warren Buffett said at Berkshire Hathaway’s annual shareholder meeting in Omaha.

While he said he wasn’t sure if the world market would be able to absorb all of the US debt that is being offered, he also pointed out the lack of options. “My best speculation is that US debt will be acceptable because there isn’t an alternative for it,” Warren Buffett said, in reply to a question on concerns regarding the huge quantity of US sovereign debt on offer.

Follow our live blog on Berkshire Hathaway shareholders meeting

However, while the media and economists like to talk about the US Fed and the debt, the focus should be on fiscal deficit. “Jerome Powell is not only a great human being, but a very wise man. But he doesn’t control fiscal policy. Every now and then, he sends out a disguised plea, saying please pay attention to this,” Buffett said.

He compared the situation to the 1980s when inflation at 9.1 percent was the big problem, and how Paul Volcker as US Federal Reserve chairperson helped curb it. At that time too, it was more important to pay attention to inflation, than to the quantity of the US debt, he said.

“Paul Volcker worried about this back in 1980. He has threats on his life. I happened to have a little contact with him at that time. He was an amazing fellow and he had decided to act or else the financial system would have fallen apart in some way he couldn’t predict. Then he did it. He was the man for the crisis,” Buffett added.

What leaders of conglomerates may want to learn from Warren Buffett about transition: Ajit Jain explains

US CPI inflation has risen to 3.5 percent in April, rising slightly from 3.1 percent in February. Core PCE index has risen to 0.3 percent in April. This rise in inflation has pushed the rate cut expectations to the later part of the year.

On the other hand, the nation’s debt has permanently topped $34 trillion, and is on its way to hit $35 trillion soon, going by the recent pattern. The US debt load has been growing at a faster rate in recent months, increasing about $1 trillion nearly every 100 days.

“It won’t be the quantity of the national debt. It's whether inflation would get loose in a way that would threaten the whole world’s economic situation. There isn’t any alternative to the dollar as a reserve currency,” he said.