2010: What's the chance of higher inflation?

BECKY QUICK: This question comes from Jonathan Marsh (PH) in Sydney, Australia.

He says, “Many shareholder letters in the 1970s and 1980s discussed various aspects of inflation and its potentially destructive effects on investment.

“The 2008 letter mentioned the current Federal Reserve’s quantitative easing could again bring about inflation, yet the 2009 letter made no mention of this threat.

“What are your current thoughts on the risk level of higher inflation in the United States?”

WARREN BUFFETT: Well, I may be a little biased on this because I’ve always worried a lot about inflation, and there’s been a lot of inflation.

You know, Charlie’s pointed out, you know, since I was born in 1930, the dollar’s depreciated by well over 90 percent. But as he also points out, we’ve done OK. So it isn’t the end of the world, necessarily.

I think that the prospects for significant inflation have increased, you know, with what — not only here, but around the world, with the situation that governments have either been forced into or elected to embrace.

And they may well have been the correct responses, but we may find that weaning ourselves from the medicine was harder than solving the original illness. And the medicine, you know, has been massive dosages of debt. And, like I say, not only here, but elsewhere.

And I don’t see any way that countries running very high deficits, relative to GDP, don’t have a significant diminution in the value of their currency over time.

Now, it could be done for a while. I mean, we’ve done it through wars and everything else, and maybe we will correct the situation.

But if we don’t, I wrote an op-ed piece in The New York Times about a year ago on this.

And I do think that if you wanted to bet on higher or lower inflation, bet your life on it, I’d bet on higher, and maybe a lot higher.

Charlie?

CHARLIE MUNGER: Well, again, I agree. (Laughter)