“In poker terms, the Treasury and the Fed have gone “all in.” Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation.”
—Warren Buffett, letter to Berkshire Hathaway shareholders, February 27, 2009
“Our current chairman of the Federal Reserve, Ben Bernanke, is an ‘inflationist.’ When times were good, he supported an easy money policy. Even when the Fed raised rates, Bernanke took great pains to give the markets many warnings to insure that the higher rates wouldn’t break up the credit party, i.e., bubble formation. Now that the cycle has turned, the Fed has promised to resort to ‘all means necessary’ to head off the effects of the collapsed bubble. Rates have effectively been lowered to zero. The Fed is making loans collateralized by toxic waste and has now begun a policy called ‘quantitative easing’ – a fancy term for ‘printing money.’ The size of the Fed’s balance sheet is exploding and the currency is being debased. Combined with an aggressive fiscal policy, it is clear that the authorities are going ‘all in’ to try to mitigate the near-term effects of the economic collapse. Our guess is that if the chairman of the Fed is determined to debase the currency, he will succeed. Our instinct is that gold will do well either way: deflation will lead to further steps to debase the currency, while inflation speaks for itself.”
—David Einhorn, letter to Greenlight Capital investors, January 20, 2009
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