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Warren Buffett Weighs in on Fiscal Cliff

Posts by Ian Wyatt

The world’s foremost investor offered up his thoughts on the fiscal cliff in an interview with CNBC today.

Obviously any time Warren Buffett speaks, investors listen. And with the uncertainty of the fiscal cliff plaguing the market, his words today carried even more weight.

Here are some of the major points Mr. Buffett made in the interview:

  • On what his plan would be to get the U.S. economy back on its feet: “The plan would get us in the near future to having 18.5% of GDP as revenues and 21% of GDP as expenses. We’ve had that plan basically in effect since World War II. It’s bounced around a little, but those two levels – 18.5% and 21% — are sustainable in the sense that they will increase the ratio of the national debt to GDP. They’ll run a deficit every year, but because our economy grows, 18.5% and 21% is a very sustainable figure.”
  • On the chances Congress will get a deal done before the December 31 deadline: “I’m not sure they’ll do it by December 31. I have seen Washington, and they don’t want to negotiate in public. So you’re not going to hear Democrats talk a lot about what expenditures they’re willing to cut, and you’re not going to hear Republicans talk about what revenues they’ll increase. … But in private they will. My view is they’ll get to something (done), but it may not be by December 31.”
  • On what kind of growth is realistic: “We’ll get growth. Three percent (growth) would allow a bigger spread between revenue and expenditures as a percentage of GDP. Three percent growth with 1% population growth – that means a 40% change upward in one generation in 20 years to the standard of living. That’s a pretty lofty goal. Even with 2% growth, with 1% growth in the population, the next generation lives 20% per capita better than the present generation, which is pretty remarkable.”