2009: What's Buffett's outlook on the US Dollar?

AUDIENCE MEMBER: Hello, Mr. Buffett and Mr. Munger. My name’s Dan Lewis (PH). I’m from Chicago.

My question has to do with the U.S. dollar versus other major currencies. You spoke a little bit already about the — government policy and its effect on inflation in the future.

And just by itself, you’d think inflation would hurt the dollar. But obviously, there’s a lot of other factors at play. So I’m kind of interested in knowing your latest outlook on the dollar.

I know you’ve been bearish. But given everything that’s been thrown up in the air in the last six months, how you think these various things will come together, trade deficit, budget deficits, and how it will affect the dollar?

WARREN BUFFETT: Yeah. It’s pretty unpredictable. But the — I will guarantee you that the dollar will buy less, you know, five, 10, 20 years from now. And it may be — it may buy very, very substantially less.

But I don’t know that, obviously. But we are doing things that will hurt the purchasing power of the dollar.

On the other hand, the same thing is happening in countries around the world. So it’s very difficult to say whether the dollar versus the pound or the dollar versus the euro, et cetera — how that will behave.

Because, you know, the British will run a deficit this year of 12 and a fraction percent of GDP. And even the Germans, with their, you know, long-time fear of inflation, will probably run a deficit of 6 and a fraction percent of GDP.

So you’ve got governments around the world all electing to run — and I think properly so — electing to run very material deficits, in some cases, you know, close to unprecedented except in wartime — electing to do that in order to offset this contraction of demand by their citizenry.

And how that plays out in relative exchange rates, I can’t tell you. How it will play out in terms of the value of their currencies’ purchasing power in the future versus now, I think, is fairly easy to say, and that’s that it’s going to cause units of currency to buy a lot less over time.

That isn’t going to happen in the next year or two. But that doesn’t mean that markets won’t start anticipating it at some point. And it’s going to be a very, very interesting future.

I mean, we are doing things that we haven’t seen in the past. And policymakers do not know the outcome of that. I don’t know the outcome of it. You do know it will have consequences. And — you can bet on inflation.

Charlie?

CHARLIE MUNGER: Well — I was raised here in Omaha. And I well remember the two-cent first class stamp and the five-cent hamburger. And so, in my life, there’s been a lot of inflation.

And in my life, I think I’ve had the most privileged era of all history in which to live. So a little inflation is not going to ruin the lives of any of us.

The trick is to avoid the runaway inflation. That is a problem Warren and I are going to quitclaim to the younger people. (Laughter)

WARREN BUFFETT: Here is a product, though. Six and a half ounces of this product, 100 years ago, cost a nickel plus a two-cent deposit. And it’s hardly gone up in price at all. It’s very interesting. And wheat hasn’t gone up that much or oats or things of that sort.

And on the other hand, a newspaper that cost a penny 100 years ago costs a dollar now and they lose money turning it out. So it gets very uneven, in terms of its impact.