Warren Buffett explains the simple reason the US will never default on its debt


The US Treasury is borrow $ 3 trillion in three months to pay for the pandemic response, a record sum that eclipses the $ 1.8 trillion borrowed in 2009 during the financial crisis. The debt will be sold in the form of bonds to various foreign and domestic investors.

At the Berkshire Hathaway 2020 annual shareholders meeting on Saturday, which was closed to the public due to Covid-19 but broadcast live on Yahoo FinanceBillionaire investor Warren Buffett has carefully explained in layman’s terms why the United States will never default on its debt.

When a worried shareholder asked him if there was a risk, he didn’t procrastinate, but started with a “no”.

“If you print bonds in your own currency, what happens to the currency will be the question,” Buffett said. “But you are not lacking. The United States has been smart to issue its debt in its own currency. “

Other countries don’t, Buffett said.

“Argentina now has a problem because the debt is not in its own currency, and a lot of countries have had this problem,” he said. “And a lot of competent countries will have this problem in the future.”

A Berkshire Hathaway shareholder holds a fake dollar bill with the face of billionaire financier and Berkshire Hathaway CEO Warren Buffett at the launch celebration for the Berkshire Hathaway annual shareholders meeting in Omaha, Nebraska, on May 2, 2008. REUTERS / Carlos Barria

Over the years, many have worried about the growing national debt, as tax cuts and spending have created a growing gap between receipts and cash outflows. But in his explanation, Buffett pointed out the distinctions that make the US Treasury very different from your personal checkbook.

Mainly, the government owns the printing press to pay the money to the holders of its debt.

“It’s very painful to owe money in someone else’s currency,” said Buffett. “If I could issue Buffett dollars, had a printing press, and could borrow money, I would never default.”

It’s a common refrain of Modern monetary theory as well as longtime Fed Chairman Alan Greenspan, who once noted something similar: “The United States can pay any debt they have because we can always print money to do it. So there is no probability of default.”

Inflation is the number one concern with just printing money to pay for bonds.

“What you end up getting in terms of purchasing power can be questioned,” Buffett said.

But there is no doubt that the United States can pay the dollars it owes. The Oracle of Omaha noted when Standard & Poor’s downgraded US credit rating in 2011.

“To me it didn’t make sense,” he said. “How can you think of a business as stronger than someone who can print money to pay you, I just don’t understand. So don’t worry about the government’s default.

Treasury Secretary Steven Mnuchin, right, shows his wife Louise Linton a sheet of new $ 1 bills, the first banknotes bearing his signature and that of U.S. Treasurer Jovita Carranza, Wednesday, November 15, 2017, at the office of Engraving and Printing (BEP) in Washington.  The Mnuchin-Carranza banknotes, which are a new series of 2017 $ 1 notes, with 50 subjects, will be sent to the Federal Reserve for circulation.  On the left is the director of the BEP, Leonard Olijar.  (AP Photo / Jacquelyn Martin)

Treasury Secretary Steven Mnuchin, right, shows his wife Louise Linton a sheet of new $ 1 bills, the first banknotes bearing his signature and that of U.S. Treasurer Jovita Carranza, Wednesday, November 15, 2017, at the office of Engraving and Printing (BEP) in Washington. The Mnuchin-Carranza banknotes, which are a new series of 2017 $ 1 notes, with 50 subjects, will be sent to the Federal Reserve for circulation. On the left is the director of the BEP, Leonard Olijar. (AP Photo / Jacquelyn Martin)

Buffett then addressed the frequent government shutdowns that occur because of partisan arguments about raising the debt ceiling.

“I think it’s a little crazy by the way … to have these limits on the debt,” he said. “Then [the] arrested the government, arguing over whether it was going to increase the limits. We will increase the debt limits.

Buffett pointed out that the debt “will not be paid, it will be paid,” and referred to the period of the 1990s when the debt went down and the country simply created more.

“When the debts go down a bit, the country will print more debt. The country will grow in terms of debt repayment capacity, ”he said. “But the trick is to keep borrowing in your own currency.”

Ethan Wolff Mann is a writer at Yahoo Finance who focuses on consumer issues, personal finance, retail, airlines, and more. Follow him on twitter @ewolffmann.

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