Are You Worried About Congress Playing Politics with the Debt Ceiling?
Introduction
This question was posed by Eric Weissman, asking about concerns regarding Congress playing politics with the raising of the debt ceiling and its potential impacts on Berkshire Hathaway stock and the overall economy.
The Asinine Act of Not Raising the Debt Ceiling
Warren Buffett believes that not raising the debt ceiling would be an extremely foolish act. He compared it to a bill passed in Indiana in the 1890s that attempted to change the value of pi to 3 for the sake of school children. He sees the refusal to raise the debt ceiling as equally absurd, especially considering the current deficit running well over a hundred billion dollars a month.
The Problem with the Debt Ceiling
Buffett points out that having a debt ceiling in the first place is a mistake. The United States in 2011 has a different debt capacity than it did in 1911, and as a growing country, it will continue to have a growing debt capacity. While he doesn't think growing debt as a percentage of GDP is a great idea, the debt ceiling creates unnecessary games and wastes a lot of time.
The Certainty of Increasing the Debt Ceiling
In Buffett's view, there is no chance that Congress will not increase the debt ceiling. He would even like to see the idea of a debt ceiling eliminated as it leads to periodic stalemates and posturing.
The United States and Debt Crisis
The United States will not have a debt crisis as long as it continues to issue notes in its own currency. Buffett contrasts this with countries in the European Monetary Union that have given up the right to issue debt in their own currency. He also mentions that Japan, with a high debt-to-GDP ratio, has consistently borrowed in its own currency.
An Example from the Past
Buffett and Charlie Munger recall an incident in the late 1960s when they were trying to buy a bank in Chicago during a time of tight money. They considered borrowing in Kuwaiti dinars but decided against it due to the uncertainty of the dinar's value when it came time to repay.
The Current Political Situation
Charlie Munger laments the current political situation where both parties seem to be competing to be the most stupid, often topping each other's actions.