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Warren Buffett: Debt ceiling should be removed


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http://www.politico.com/news/stories/0711/59335.html

 

Billionaire investor Warren Buffett says the debt ceiling should be done away with, arguing it is nothing more than an “artificial limit” that ends up wasting time in Congress.

 

“All it does is slow down a process and divert people’s energy, causes people to posture. It doesn’t really make any sense,” the Berkshire Hathaway CEO said in an interview with NBC News on Monday afternoon at the White House. The interview followed a meeting Buffett and Bill and Melinda Gates had with President Barack Obama about charitable giving.

 

The debt limit has “change[d] almost 100 times over the years” and “I think seven times in the Bush administration,” Buffett said.

 

“The way to limit debt is by taking in revenues that are appropriate in relation to your expenditures,” he said. “And to have the artificial limit which gets raised in the end disrupt the activities in an important way of Congress periodically, I think it’s a waste of Congress’ time.”

 

 

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According to Morgan Housel of the Motley Fool, Charlie Munger had this to say on the debt ceiling:

 

"This raises the question of why the U.S. even has a debt ceiling. No other major nation has one. The popular argument is that a debt ceiling prevents the Treasury from engaging in out-of-control spending. But this is short on logic: The Treasury doesn't spend money. It simply pays the bills Congress racks up. If overspending is the issue, that's what Congress should be debating -- not whether it should tie the hands of the bank that pays for its spending."

 

Sounds like Munger feels the same way that Buffett does about the debt ceiling.

 

Here's the original article: http://www.fool.com/investing/general/2011/05/10/charlie-munger-on-berkshires-future-taxes-and-the-.aspx

 

I like Charlie Munger more and more every day!

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How can you apply "rationality" to Congress. A politician overspends to "bribe" voters in order to get re-elected. This has nothing to do with being rational, its about survival. A politician will continue to overspend as long as he can get away with it. When did Congress ever have a rational discussion about overspending????  The only reasons we are having any discussion at all presently is because of the 2010 elections and the debt limit.

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http://www.politico.com/news/stories/0711/59335.html

 

Billionaire investor Warren Buffett says the debt ceiling should be done away with, arguing it is nothing more than an “artificial limit” that ends up wasting time in Congress.

 

“All it does is slow down a process and divert people’s energy, causes people to posture. It doesn’t really make any sense,” the Berkshire Hathaway CEO said in an interview with NBC News on Monday afternoon at the White House. The interview followed a meeting Buffett and Bill and Melinda Gates had with President Barack Obama about charitable giving.

 

The debt limit has “change[d] almost 100 times over the years” and “I think seven times in the Bush administration,” Buffett said.

 

“The way to limit debt is by taking in revenues that are appropriate in relation to your expenditures,” he said. “And to have the artificial limit which gets raised in the end disrupt the activities in an important way of Congress periodically, I think it’s a waste of Congress’ time.”

 

 

 

I strongly disagree.  The limit on the national debt is like having a limit on a credit card that is lower than what one's credit could support.  Bumping against that limit forces one to reconsider the consequences of potentially excessive borrowing.  The limit makes the decision to increase the level of borrowing intentional rather than inadvertent, thus giving the frog a chance to jump out of the increasingly hot water before being boiled alive.

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“The way to limit debt is by taking in revenues that are appropriate in relation to your expenditures,”

 

I love Warren but this quote is beyond the pale. "...take in revenues that are appropriate in relation to your expenditures...", yes true, but the key thought here is "what are appropriate expenditures". If your expenditures are out of wack and growing expotentially, tax revenue increases will evantually stifle economic growth and make serfs of us all. As smart as Warren is I simply don't understand why he refuses to acknowledge that spending needs to be controlled before you can have a rational discussion about revenue increases. 

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“The way to limit debt is by taking in revenues that are appropriate in relation to your expenditures,”

 

I love Warren but this quote is beyond the pale. "...take in revenues that are appropriate in relation to your expenditures...", yes true, but the key thought here is "what are appropriate expenditures". If your expenditures are out of wack and growing expotentially, tax revenue increases will evantually stifle economic growth and make serfs of us all. As smart as Warren is I simply don't understand why he refuses to acknowledge that spending needs to be controlled before you can have a rational discussion about revenue increases. 

 

The level of spending is immaterial to Buffett's point -- he says nothing about the appropriate level of spending.  If you want to spend at 24% of GDP you need to tax at 24% of GDP.  If you only want to tax at 18% of GDP then you need to limit spending to 18% of GDP.  He's advocating for having tax revenue in line with the desired amount of spending.

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Zarley,

 

Ok, understood. In that case why not have expenditures at 50%, 70% or 100% of GDP, then we can have government take 100% of our income. My point is that a man of Warren's statue needs to have an opinion about what is the appropriate size of government. The fact that Warren says revenues should be equivalent to expenditures is not enough. As far as I am concerned as government grows larger I retain less of my wealth, my options diminish, I am less free. Unfortunately Warren has abdicated his moral responsibility on this score.

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I think Warren's point is that it doesn't make sense to threaten not to pay your bills and default every time there's an internal debate about the proper level of spending. Can you imagine if every country did things like that, potentially defaulting every time politicians are split?

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My point is that a man of Warren's statue needs to have an opinion about what is the appropriate size of government.

 

LOL, who are you to say what opinions Buffett should have and how/where he should express them?  He was asked about the debt ceiling and he answered about the debt ceiling.  You want his opinion about the proper level of government spending, go Omaha and ask him.

 

My opinion is that the debt ceiling increase should have been part of the legislation authorizing the spending that Congress passed and the President signed in April.  That is the time to debate the appropriate level of spending, taxation, and borrowing. 

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“All it does is slow down a process and divert people’s energy, causes people to posture. It doesn’t really make any sense,” the Berkshire Hathaway CEO said in an interview with NBC News on Monday afternoon at the White House. The interview followed a meeting Buffett and Bill and Melinda Gates had with President Barack Obama about charitable giving."

 

-To clarify, this is why I made the remark about Buffett and Munger. Munger does not meet, as far as I know, with the biggest posturers, Obama and/or Bush (politicians in general)! He does not, as far as I know, lead a group of people to give charitably instead of letting the government confiscate 55% of wealth if that same person died, while also pushing for that estate tax to be enforced in full. Buffett and Munger, as usual, entirely rational, full of wisdom and great advice, I am glad I found out about them around 1998. My life is RICHER in more ways than one, the least of which concerns my wallet! Munger simply keeps a lower profile and leads his private life as I ASSUME he would lead a government, frugally and with an eye on what it does best (Circle of Competence). Buffett's attitude towards government, I believe, has been affected by his awful experiences as a child and as a teen/young adult who did not really fit in. He wants to please EVERYONE, and he ends up pleasing NO ONE, which sounds a lot like our dysfunctional, heavily in debt government.

 

Cheers, and thanks for your opinions and knowledge-sharing.

 

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I think Warren's point is that it doesn't make sense to threaten not to pay your bills and default every time there's an internal debate about the proper level of spending. Can you imagine if every country did things like that, potentially defaulting every time politicians are split?

 

I understand your point and under different circunstances I would agree. But, because our Congress is so dysfunctional, irresponsible, and conflicted, the only way to have a functional debate about the proper level of spending is under imminent threat of default. Its to bad its gotten to this point but how do you stop $1 to $2 trillion deficits into the future. As far as other countries that do not have a debt limit, lets talk about Greece, Italy, Spain, Ireland, Portugal, etc.....and the list goes on. 

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But, because our Congress is so dysfunctional, irresponsible, and conflicted, the only way to have a functional debate about the proper level of spending is under imminent threat of default.

 

I don't get this. 

 

Because Congress is so "dysfunctional, irresponsible, and conflicted," Congress should take those attributes to the next level and play Russian roulette with the economy in order to have a debate over the proper level of spending . . . or, rather, the propriety of tax increases?

 

Am I wrong in thinking that everyone in the government agrees that we must spend less, but that the primary hang up is whether there should be tax increases incorporated into any deal?

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Am I wrong in thinking that everyone in the government agrees that we must spend less, but that the primary hang up is whether there should be tax increases incorporated into any deal?

 

I am sorry to say that I think you are wrong. Everyone in the gov't does not agree that we must spend less. The only reason that we are now having this debate in Congress is because of the outcome of the 2010 elections. If the Democrats still had control of both houses of Congress and the Presidency there would be no debate about spending less. There would have been no extension of the tax cuts in December, taxes would have increased. Unchallenged, the 2011 budget deficits would be between $1.5 to $2 trillion, and taxes would have been raised yet again in an attempt to cover the shortfall. Does anyone out there doubt this???

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I am sorry to say that I think you are wrong. Everyone in the gov't does not agree that we must spend less. The only reason that we are now having this debate in Congress is because of the outcome of the 2010 elections. If the Democrats still had control of both houses of Congress and the Presidency there would be no debate about spending less. There would have been no extension of the tax cuts in December, taxes would have increased. Unchallenged, the 2011 budget deficits would be between $1.5 to $2 trillion, and taxes would have been raised yet again in an attempt to cover the shortfall. Does anyone out there doubt this???

 

Nope, you are absolutely correct.  But let's not blame the Democrats entirely for spending too much, when it was a Republican-controlled Congress and Senate, along with support from the Democrats, that repealed Glass-Steagell...which eventually cost the planet roughly $8T dollars to date...and the tab is still rising. 

 

It was also a Republican-controlled House and Senate, that loosened mortgage rules and monetary policy to the point where every idiot Barney Frank knew could buy a house.  Cheers!

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I think Warren's point is that it doesn't make sense to threaten not to pay your bills and default every time there's an internal debate about the proper level of spending. Can you imagine if every country did things like that, potentially defaulting every time politicians are split?

 

I think Warren's (and Larry Summer's) viewpoint that these represent "your bills" is a bit of a false premise.  They aren't my bills or your bills technically.  They are the government's bills.  Governments change and people change.  Why should their decisions still be binding?  Should Russians today still have to pay for Soviet decisions? Should Iranian citizens still pay for the Shah's decisions?  You get my point.  

 

Not to be tangential here but, as a society, I think it's completely normal to have serious debates about whether we want to accept the sins (or debts) of our fathers and grandfathers.  That's a perfectly healthy debate.  In fact, Judaism and Christianity has always accepted the idea of Jubilee: that over long periods of time, a forgiveness or debt and sin is healthy.  

 

Now all of a sudden it's "unthinkable" (Summers) and like a "gun to the head." (Buffett)

 

I feel sorry for the society that doesn't have this conversation.    

 

P.S. - I am not saying we SHOULD; I am just saying the conversation is perfectly healthy.  Just to be clear.

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Am I wrong in thinking that everyone in the government agrees that we must spend less, but that the primary hang up is whether there should be tax increases incorporated into any deal?

 

I am sorry to say that I think you are wrong. Everyone in the gov't does not agree that we must spend less. The only reason that we are now having this debate in Congress is because of the outcome of the 2010 elections. If the Democrats still had control of both houses of Congress and the Presidency there would be no debate about spending less. There would have been no extension of the tax cuts in December, taxes would have increased. Unchallenged, the 2011 budget deficits would be between $1.5 to $2 trillion, and taxes would have been raised yet again in an attempt to cover the shortfall. Does anyone out there doubt this???

 

I agree that we are actually starting to grapple with this issue because the Democrats lost control of Congress.  I actually think it was a good thing that the Dems lost control.

 

But I wasn't literally saying that everyone in the government agrees that we must spend less.  What I was implying was that both the Republicans and Democrats have put long-term spending reduction plans on the table. 

 

The Obama plan was put out in April.  The Republicans didn't like it because it didn't go far enough on entitlement cuts (particularly, health care cuts) and because of the tax increases on high income Americans. 

 

Obviously, Obama's intention was to come to a compromise where both sides would give concessions.  Up until now, though, the House Republicans have refused to make concessions on revenue (tax) increases, and they are being recalcitrant about this to the point where they're willing to put a gun to the head of the nation's economy.

 

Now that Obama has backed the Gang of Six plan, can the GOP legitimately say that this is about saving the country from our debt versus scoring political points?

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I think Warren's point is that it doesn't make sense to threaten not to pay your bills and default every time there's an internal debate about the proper level of spending. Can you imagine if every country did things like that, potentially defaulting every time politicians are split?

 

I think Warren's (and Larry Summer's) viewpoint that these represent "your bills" is a bit of a false premise.  They aren't my bills or your bills technically.  They are the government's bills.  Governments change and people change.  Why should their decisions still be binding?  Should Russians today still have to pay for Soviet decisions? Should Iranian citizens still pay for the Shah's decisions?  You get my point.  

 

Not to be tangential here but, as a society, I think it's completely normal to have serious debates about whether we want to accept the sins (or debts) of our fathers and grandfathers.  That's a perfectly healthy debate.  In fact, Judaism and Christianity has always accepted the idea of Jubilee: that over long periods of time, a forgiveness or debt and sin is healthy.  

 

Now all of a sudden it's "unthinkable" (Summers) and like a "gun to the head." (Buffett)

 

I feel sorry for the society that doesn't have this conversation.    

 

P.S. - I am not saying we SHOULD; I am just saying the conversation is perfectly healthy.  Just to be clear.

 

We are having this conversation.  Both on this board and in the real world. 

 

Calling something "unthinkable" or like a "gun to the head" is in no way advocating that people shut up about these debt problems that we have.

 

Your idea about not paying the bills because they are the government's bills and not yours is very much at odds with our system of government.  The fundamental premise of the US system is that the government is not a sovereign separate from the people.  The people are the government.  "Government of the people, by the people, for the people."

 

Now, you might ask, why should we bound by the dead hand of the past?  The only answer is that because there is a social compact that entails that we be bound to some degree to the decisions of past generations.  And because the people have the ability, in theory, to change the situation by putting a new government in power.

 

I mean, why should we follow the US Constitution or any past federal laws?  We didn't come up with the text or elect those legislators who came up with those laws.  Taken to the logical extreme, your idea is pretty radical.

 

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TX inmo you cant have an honest intelligent conversation with converted Libertarians. They basically want the benefits of a state with only the costs they personally agree with. Its an ideology which inmo always leads to extreme and illogical conclusions.....

 

Those who continue to view problems through the framing of left vs. right are part of the problem inmo. If one steps back its clear to see that one party is spineless, and one wholly irrational. The debt will never be paid down without growth. Policies which cause contraction therefore cant be the solution......

 

This will have to be solved through tax reform (increases), rational cuts (perhaps ending both wars, and trimming entitlements), and policies designed to deal with unemployment / spark growth. Anything else is just ideology, rhetoric, and a waste of time.

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This will have to be solved through tax reform (increases), rational cuts (perhaps ending both wars, and trimming entitlements), and policies designed to deal with unemployment / spark growth. Anything else is just ideology, rhetoric, and a waste of time.

 

It's nice to see this crystallization of what must be done to solve our problems.

 

Now if only we could get some of the folks in government to say something like this.

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I think Warren's point is that it doesn't make sense to threaten not to pay your bills and default every time there's an internal debate about the proper level of spending. Can you imagine if every country did things like that, potentially defaulting every time politicians are split?

 

I think Warren's (and Larry Summer's) viewpoint that these represent "your bills" is a bit of a false premise.  They aren't my bills or your bills technically.  They are the government's bills.  Governments change and people change.  Why should their decisions still be binding?  Should Russians today still have to pay for Soviet decisions? Should Iranian citizens still pay for the Shah's decisions?  You get my point.  

 

Not to be tangential here but, as a society, I think it's completely normal to have serious debates about whether we want to accept the sins (or debts) of our fathers and grandfathers.  That's a perfectly healthy debate.  In fact, Judaism and Christianity has always accepted the idea of Jubilee: that over long periods of time, a forgiveness or debt and sin is healthy.  

 

Now all of a sudden it's "unthinkable" (Summers) and like a "gun to the head." (Buffett)

 

I feel sorry for the society that doesn't have this conversation.    

 

P.S. - I am not saying we SHOULD; I am just saying the conversation is perfectly healthy.  Just to be clear.

 

We are having this conversation.  Both on this board and in the real world.

 

Calling something "unthinkable" or like a "gun to the head" is in no way advocating that people shut up about these debt problems that we have.

 

Your idea about not paying the bills because they are the government's bills and not yours is very much at odds with our system of government.  The fundamental premise of the US system is that the government is not a sovereign separate from the people.  The people are the government.  "Government of the people, by the people, for the people."

 

Now, you might ask, why should we bound by the dead hand of the past?  The only answer is that because there is a social compact that entails that we be bound to some degree to the decisions of past generations.  And because the people have the ability, in theory, to change the situation by putting a new government in power.

 

I mean, why should we follow the US Constitution or any past federal laws?  We didn't come up with the text or elect those legislators who came up with those laws.  Taken to the logical extreme, your idea is pretty radical.

 

Actually, we don't follow the US Constitution and many people in power don't current follow federal law (unless you actually think Tim wasn't smart enough to use TurboTax.)  But that's not what I was trying to say ... at all.

 

This idea of sovereign default being "unthinkable" due to some nebulous view of a social compact (a view not universally held mind you) or the most famous line from a battlefield speech 150 years ago (a war in which the government "of the people" imprisoned their own political dissidents) is just childish.

 

There have been 200 or so sovereign defaults in the history of this little blue planet.  201 is not some unthinkable outcome -- it's inevitable.  Believe it or not, finance didn't begin in 2009 and, heads up, Greece has done this before ... A LOT (despite what George Papandreou wants you to think.)

 

Sovereign default is simply a large efficient breach -- a legal strategy that is as old as contracts themselves.  Someone compares this to having a "gun to your head" and what I say is radical? It's not radical ... it's history.  If you a sovereign default is the end of the world, then it's a miracle we have come this far with all those "world ending" sovereign defaults from the past.  

 

But like I said in another thread, I am with Drunkenmiller on this one.  People are getting sucked into the drama and losing perspective.

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Argentina or Greece defaulting isn't quite the same as the US defaulting, though, is it? When you're at the bottom and a relatively small economy, you can't go much lower, but when you're AAA and the biggest economy in the world, you have much more to lose and there's going to be a lot more uncertainty about how market will take it.

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 I've kind of been feeling that with the constant loss of value in the dollar over my lifetime that there has been a constant gradual default anyway. Since when does a government honor a contract when it doesn't suit them? They always find a way around them when it suits their needs. Everyone has known for years that this was coming because of making contracts that everyone knew couldn't be honored without manipulation "defaulting". Medicare, Social Security, etc. I agree with Buffett. Why have a debt ceiling when you know you can't honor it at some point in time and will have to change the contracts original terms constantly?

 

From NY Times today

 

  BRUSSELS — European leaders on Thursday were drawing up a new rescue plan for Greece that may push the country into default on some debt for a short period, but which would also give Europe’s bailout fund vast new powers to shore up struggling economies. No details were given, but rating agencies have warned in recent weeks that such plans may constitute a limited form of default because creditors would not be repaid in full on the original terms.

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