Warren Buffett Says Debt Downgrade Was The Wrong Decision

Warren Buffett spoke yesterday about the recent debt downgrade by Standard & Poor’s. Buffett found the downgrade by the S&P puzzling and stated that it “doesn’t make any sense”. He stated that if anything that the rating should have been raised to quadruple A. US Treasuries are still the gold standard when it comes to investment and the risk of default is virtually nonexistent.

Buffett, who is the largest shareholder in Moody’s, says that the ratings of the big three agencies(Moody’s, S&P, Fitch) do not affect his investment decisions. Buffett’s company, Berkshire Hathaway (BRK-A) is one of the largest buyers of U.S. Treasuries in the country.

That is one of the aspects that I like about Buffett. He amassed a fortune by being a contrarian investor. He is never swayed by popular opinion. He instead does his own analysis and takes an assessment of the situation. His decisions are always free of emotion. While the media and markets are temporarily panicked over the debt downgrade, Buffett takes a long term view of the situation. He believes that the deficit is not a big deal and can easily be fixed.

Read how Buffett Sees A Rebound In The Housing Market Coming

Warren Buffett Approach To Investing And Debt

Buffett stated that he could end the deficit in five minutes. His solution is simple and effective:

I could end the deficit in five minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP all sitting members of Congress are ineligible for reelection.

He would tie the performance of the economy and fiscal policy to the election of politicians then you would finally see smart economic solutions. People argue along their party lines and political beliefs. I have always felt that simple spending cuts and additional tax increases can have the country’s debt under control easily.

Buffett takes the same contrarian approach to investing as well. While other corporate leaders were complaining about uncertainty and fear this weekend, Buffett was putting more capital to work. Berkshire Hathaway made a $3.25 billion dollar offer for insurance company Transatlantic Holdings (TRH). Buffett has started to aggressively buy stocks again as the last quarterly report of Berkshire Hathaway showed.

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10 Responses to “Warren Buffett Says Debt Downgrade Was The Wrong Decision”

  1. I could end the deficit in five minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP all sitting members of Congress are ineligible for reelection.

    I love the idea. The only problem is that congress would have to approve this law. ;)

  2. avatar krantcents says:

    Sounds like a true meritocracy! It is certainly a performance based system, but unfortunately to broad of a system to work. I do like the concept!

  3. Tying the deficit reduction into the requirements for reelection would work wonders. It would get the politics off the table and make them work at a real solution. Not just say what they think people want to hear so they can get re-elected and place all the blame on the president.

  4. Warren Buffett sure knows which side his bread is buttered on. Sucking up to the feds….. (the U.S. should have a quadruple A rating). Sure thing Mr. Buffett.

  5. avatar Ginger says:

    The problem is, Buffet’s wrong. Congress came so close to making us default. We need not to get to that point again and with the current Republican strategy of using important issues as hostages we cannot guarantee that we won’t default. We either need to cut out deficit quickly yet keep our government and economy stable or change the republican core people, or both could happen. Either of those could keep this from happening again.

    • avatar Mark says:

      I agree with you. I abhor the politics that Congress played with the debt ceiling. I found the Republican stance to be pure politics and political game playing. Members saying that raising the debt ceiling didn’t matter was ridiculous! I agree with Buffett on the fact that the S&P downgrade was premature. They still give France a AAA rating. I have no confidence whatsoever in the ratings agency.

  6. The reason for the downgrade has to do with the politics of the situation not the financials. Yes, Buffett’s solution is easy, but won’t happen due to politics. Treasuries should be safe and never default but due to politics were merely hours away from doing just that. Logic and politics simply don’t mix.

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