Warren Buffett :Isn’t Freaking Out About The Fiscal Cliff

The Snowball: Warren Buffett and the Business of Life (Photo credit: Wikipedia)

 

Nov 16

The CBO has issued a report that says the U.S. would go back into a recessionif it were to go over the fiscal cliff – over $600 billion in tax and spending provisions set to change on January 1, 2013.

In fact the fiscal cliff has rapidly grown to become the number one concern for investors, climbing past Europe‘s sovereign debt crisis, and China‘s slowdown.

But Warren Buffett, the Oracle of Omaha, told CNNthat he does not think the U.S. will go into a recession. He also thinks president Obama is right in trying to raise $1.6 trillion in revenue:

“We need $1.6 trillion. We need to get our revenue up to about 19 percent of GDP, and we need to get our expenses down to 21 or 21.5 percent of GDP. Everyone knows that. So it’s going to take significant action on both sides. And $1.6 trillion happens to be 1 percent of GDP, we’ll need that much revenue, and we’ll need to cut expenditures significantly too.

…”If we go past January 1st, I don’t now if it will be January 10th, or February 1st, but we’re not going to permanently cripple ourselves because 535 people can’t get along.

…We had Hurricane Sandy which disrupted the economy for a period, we had Katrina many years ago, we have things that will disrupt the economy, I mean 9/11 was an extraordinary case but we have a very resilient economy. We’ve had one for hundreds of years and the fact that they can’t get along for a month of January is not something that’s going to torpedo the economy.”

When asked if he thought the U.S. would go over the fiscal cliff now that the elections are done and we know the make up of Congress, he said it depends on the Republicans:

“It really depends very much on the Republicans in Congress. It doesn’t take the whole group in Congress to avoid that. I mean if 25 Republicans decide that they’ll put country above party and sign up for something that makes sense then we don’t need to go over the fiscal cliff.”

Watch the interview at CNNMoney:

Republicans eye a return to gold standard

Gold Key, weighing one kilogram is used to access a ten digit account number which is known only to the bearer of the Gold Key. (Photo credit: Wikipedia)

 

August 24

Is gold money? Some Republicans think it should be.

The Republican Party is considering setting up a commission to examine the pros and cons of going back to the gold standard, according to draft documents of the party platform.

The official party platform won’t be decided until Monday, but a Republican National Committee spokeswoman confirmed the draft language to CNNMoney.

The commission harkens back to the early 1980s, when President Ronald Reagan set up a Gold Commission with the same intention. Only two members of the 17-member commission endorsed a return to the gold standard. One of them was Rep. Ron Paul, who remains an avid gold supporter.

“Now, three decades later, as we face the task of cleaning up the wreckage of the current Administration’s policies, we propose a similar commission to investigate possible ways to set a fixed value for the dollar,” the new proposal says.

It’s highly unlikely the United States would actually return to the gold standard. The country first moved away from the gold standard in 1933, and dropped it altogether in 1971. Despite support for its return by some on the political right, few mainstream economists support its reinstatement.

Federal Reserve Chairman Ben Bernanke has repeatedly expressed concerns about the idea, sometimes evensparring with Paul in Congressional hearings. Research has shown the rigid constraints of the gold standard worsened the Great Depression, he said. Gold prices can also be volatile.

Plus, there’s not enough gold in the world to support such a system, as Bernanke noted in a lecture earlier this year.

“To have a gold standard, you have to go to South Africa or someplace and dig up tons of gold and move it to New York and put it in the basement of the Federal Reserve Bank of New York and that’s a lot of effort and work,” he said.

It’s an “awful big waste of resources,” he added.

But just in case the idea does gain more traction, here are some rough calculations of what would happen to gold prices, courtesy of Julian Jessop, chief global economist for Capital Economics.

The U.S. monetary base, which includes paper bills, coins and some deposits at the Fed, is currently around $2.6 trillion. Meanwhile, the U.S. Treasury and Federal Reserve hold about 260 million ounces in gold.

That means, if the government wanted every single dollar to be swapped with gold, the price of gold would have to be $10,000 per ounce.

Of course, that’s an “extreme assumption,” Jessop notes. He points out that under another scenario, the government could simply opt to have just 15% of the money supply redeemable for gold at any given time. If that was the case, the price could be set at around $1,500 an ounce — not far from its current market value of around $1,670.

— CNNMoney’s Charles Riley contributed to this report.

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