“When inflation gets started, you don't particularly notice it,” said billionaire investor Warren Buffett on CNBC. 

“It's like a guy jumping out of a 50-story building. The first 45 stories he doesn't really notice a lot of changes in his circumstances. But eventually, [he hits] the ground.

During his interview on Wednesday, the Omaha, Nebraska-based investor expressed more concerns about inflation compared to past interviews.

Buffett said the government has made more promises (entitlements) than it is able to keep. As a result, three things can happen: promises will be broken/modified, taxes will be raised, or inflation will accelerate.

He said inflation is the “ultimate tax” that some people don’t even know exists. It’s also the easiest option for politicians to pursue, and that’s what may happen down the road.

Currently, as Federal Reserve Chairman Ben Bernanke testified the previous day, inflation remains tame so far. But that’s where Buffett’s building-jumping analogy comes in, which means the impact of inflation on consumers can suddenly materialize in a short period of time (i.e., when the jumper hits the ground).

There are consequences to the Federal Reserve issuing money and buying huge amounts of securities, said Buffett, who is likely referring to the asset purchase program known as the second round of quantitative easing (QE2).

Buffett, of course, thinks inflation is the wrong route to go. Instead, his remedy is a combination of taxing the rich and modifying the promises/entitlements. One thing governments certainly shouldn’t do is make new promises, he said.

Nevertheless, Buffett remains highly optimistic about the US economy. He said it will continue to grow and the “pie will get bigger.” The only problem with too much entitlements and inflation is that it unfairly distributes that pie.

 

Email Hao Li at hao.li@ibtimes.com

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