

Warren Buffett compares US Fed to a hedge fund - newsign
http://economictimes.indiatimes.com/news/international-business/warren-buffett-compares-us-fed-to-a-hedge-fund/articleshow/22834530.cms

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dxhdr
"'The Fed is the greatest hedge fund in history, ... it's generating $80
billion or $90 billion a year probably' in revenue"

Can you get more asinine than that? Probably? How is this relevant when the
Fed is printing $85 BILLION a month to finance ongoing bond purchases? Guys
like Buffet must absolutely love the Fed because they have an outlet to
offload their illiquid garbage bonds and derivatives.

Imagine if you made a terrible investment that loses most of its value...
you're screwed, you have no choice but to suffer, eat the losses, and move on.
But wait! The government opens a shop where they'll buy your investment for
close to you original principal. You're saved! Amazing. I'd write nonsense
articles praising the government too.

~~~
jonnathanson
Buffett has made a killing owning businesses that print money, invest on
float, and whose risk is backstopped by the federal government. Businesses
like insurance, finance, and so forth. The Fed is his bread and butter. It's
his risk absorber.

It makes total sense for him to keep playing this game, because he benefits so
fantastically from it. Everyone else should take what he says for what it is.
The agenda is pretty loud and clear.

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wintersFright
Buffet is just a shill for the USG in the confidence game of US treasuries.
Sure the fed is under no pressure to sell, the pressure is really on the fed
to not stop buying.

QE infinity is all about hiding the fact foreigners are exiting treasuries so
the fed is the last resort buyer of USG debt. Without the fed backstopping,
interest rates paid by the USG on its debt would have to go up which would
very quickly crash the system.

Warren is just doing his patriotic duty to kick the can a little further down
the road.

~~~
brazzy
> the fact foreigners are exiting treasuries

Can you back up that claim?

~~~
wintersFright
Actually, foreign Central Banks don't even need to dump treasuries to require
QE Infinity - they can just reduce or stop absorbing the continual outflow of
debt emitted by the USG. The USG has a trillion dollar+ yearly budget deficit.
If central banks don't absorb that outflow of debt then either the USG reduces
its spend (as if, those NSA datacentres aren't cheap), interest rates go up
(USG will need will need even more debt to pay its debt) or the fed continues
to buy it all up.

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gfodor
I don't understand this point of view, sorry Warren. The fed is generating
revenue for the government in a certain sense, yes, but saying it is a
successful hedge fund is like me saying that if I hold a bunch of bonds in my
portfolio throwing off some interest that is a successful hedge fund. The
entire question is what are they going to be able to sell those bonds back to
the market for. If they end up having to sell them at a massive loss, which is
likely, then all that revenue they've been throwing off in interest better
offset those losses. I might have this wrong but it seems to be very odd to
characterize the fed's QE programs as a success when it is literally an
experiment in progress.

~~~
cremnob
The Fed can hold them to term. They are under no pressure to sell.

~~~
dxhdr
The Fed has no choice but to hold them to term. The Fed's whole game is to
continue keeping rates at zero by buying everything under the sun to the tune
of $85 billion! per month. Selling, or even slowing the rate of purchasing,
would do the opposite and raise rates.

~~~
cremnob
They have choices. They have complete flexibility. They are under no pressure
to do anything that isn't explicitly their goals. They want to control
inflation and increase employment. If the economy starts to heat up and
inflation starts to rise above their 2% target they will then have the option
of selling bonds or raising the federal funds rate, the latter of which is
more likely.

I'm not really sure what you're trying to get at with the last comment. He
doesn't know the exact number off the top of his head. The exact amount
remitted last year to Treasury is $88.4 billion.

~~~
dxhdr
They are under extreme pressure to continue purchasing treasury bills from the
government and mortgage backed securities and derivatives from banks. Even
hinting that they'll start tapering these purchases has caused the equity
markets to drop and rates to rise. Actually tapering will in short order throw
the country into a recession. I'd be hard pressed to call that "complete
flexibility."

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patrickg_zill
If any person, non-profit, or regular corporation, ran their business the way
the Federal Reserve did, they would be in jail as soon as what they were doing
was public knowledge.

The only reason we have this ridiculous system in place is because military
force.

~~~
Steko
I miss the good old days when monetary cranks would always come right out and
talk about the Rothschilds and 'international bankers' so the average reader
knew they were bonkers.

Fiat money won everywhere because it outcompeted the alternatives. Fractional
reserve banking too.

~~~
gpvos
So that means they followed the path of least resistance when they introduced
it, instead of thinking it through. (Or they did think it through and it was
the Rothschilds after all.)

In biological evolution, the competition winner is often a more complex
organism. Fiat money is more complex than the gold standard, and apparently
won. But in the case of the economy, we should keep things simple enough that
a large chunk of the population can still understand it. Otherwise, a small
number of very specialized people will have such an information advantage that
they can, and will be economically forced to, exploit all the others. I'm not
saying that fiat money and fractional reserve banking are a problem, but they
need to be regulated rather strongly to prevent problems.

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codex
The Fed is not driven by a profit motive, but rather acts in the best
interests of the people of the United States. This makes it as opposite of a
hedge fund as you can get.

Buffett is tongue-lashing the Fed in public because Buffet's investments won't
do well if inflation hits, and he wants the Fed to reabsorb all of the money
it has printed before inflation appears.

~~~
adventured
If the Fed acted in the best interests of the American people, they wouldn't
have devalued the dollar by 97% over the last century, and they wouldn't
continue funding the extreme fiscal irresponsibility of the US Government
(including acting as the perpetual war fund).

The primary interest of the Fed is not the best interests of the American
people, but rather maintaining the solvency of the US Government at any cost
(including destroying the middle class via gradual and persistent currency
devaluation) and providing liquidity for the global economy (given the global
reserve currency belongs to the Fed in the form of the Federal Reserve Note).

~~~
abbazabba
Why does it matter if the dollar is devalued? A less valuable dollar makes
American goods cheaper, and foreign goods more expensive. People in other
countries would rather pay for cheap American things, than something made in
their home country. That money goes directly to the pockets of Americans.

If the dollar is strong, then Americans will buy more goods made in other
countries. So when Americans travel around, they will buy more things in those
other countries. That money goes directly to the pockets of other countries.

Is that in the best interest of the American people?

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devx
Can we have that full audit of the Fed yet?

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preempalver
So 80Bil on 1 Trillion, ie 8% yearly return. Thats a shitty hedge fund

~~~
bananashake
8% yearly is very good, especially for such a large portfolio with limited
volatility. They have made quite a few good trades.

I would not want to defend all of the fed's actions, though.

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yetanotherphd
Nice clear thinking from Buffet. The ideas are very old, only the
implementation is new.

First, the Fed's actions are a mix of fiscal and monetary stimulus. They are
not different to Keynes' idea of fiscal stimulus, since they inject money into
the economy in cases where even zero interest rates couldn't.

Second, in order for stimulus to work, it must convince people to make long
term decisions (such as building physical factories, starting companies,
buying durable goods, etc.) and therefore the Fed must commit to a long term
stimulus plan. Buffet clearly outlines the Fed's approach to making this
commitment.

I know a lot of people on HN are deeply suspicious of mainstream
macroeconomics, and that is understandable since even with my training I can't
really verify that people in the field are doing things right. However, I will
say that there are a large number of countries in the world that are big
enough to have their independent macroeconomic policy. So far, no country I'm
aware of has chosen not to use the above two principles, which together can be
taken as a summary of neo-Keynsian economics. If there really some better way
out there I think that some country would have tried it.

~~~
patrickg_zill
Why do I get the feeling that the "green" in the accounts on this sub-thread,
smell like "astroturf"? We get a guy who claims he is an econ PHD (no email,
no proof of that).

Obviously you haven't read Keynes, or you have at least referenced his
warning:

^^^ Lenin is said to have declared that the best way to destroy the capitalist
system was to debauch the currency. By a continuing process of inflation,
governments can confiscate, secretly and unobserved, an important part of the
wealth of their citizens. By this method they not only confiscate, but they
confiscate arbitrarily; and, while the process impoverishes many, it actually
enriches some. The sight of this arbitrary rearrangement of riches strikes not
only at security, but at confidence in the equity of the existing distribution
of wealth. Those to whom the system brings windfalls, beyond their deserts and
even beyond their expectations or desires, become 'profiteers,' who are the
object of the hatred of the bourgeoisie, whom the inflationism has
impoverished, not less than of the proletariat. As the inflation proceeds and
the real value of the currency fluctuates wildly from month to month, all
permanent relations between debtors and creditors, which form the ultimate
foundation of capitalism, become so utterly disordered as to be almost
meaningless; and the process of wealth-getting degenerates into a gamble and a
lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning
the existing basis of society than to debauch the currency. The process
engages all the hidden forces of economic law on the side of destruction, and
does it in a manner which not one man in a million is able to diagnose. ^^^

(I add: the one man in a million including, apparently, people with PHDs)

~~~
preempalver
Where is the hyperinflation? Data please

~~~
patrickg_zill
[http://www.shadowstats.com/alternate_data](http://www.shadowstats.com/alternate_data)

Hyperinflation - not here yet. Inflation - much more than officially stated.

