Sun Valley, Idaho – July 14: Warren Buffett, President and CEO of Berkshire Hathaway, makes his way to a morning session at Allen & Company Sun Valley Conference on July 14, 2023 in Sun Valley, Idaho. Every July, some of the richest and most powerful personalities by the media, funding, technology and political spheres converge at the Sun Valley resort for the exclusive weekly conference. (Photo by Kevin Dietsch/Getty Images)
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Holding Berkshire Hathaway has $ 340 billion in cash and cash equivalents. The speculation of the media indicates that the belief of outstanding funds marks Warren Buffett’s belief that companies are currently overpriced.
Without assuming that we know the exact thinking of one of the largest investment minds in the world, it is best to focus on the smaller truths of Berkshire’s cash. Specifically, it glorifies the popular neo-Austrian school view that almighty banks, seemingly for banks, multiply money in useless.
While Ludwig von Mises knew that market actors borrowed money for what he could exchange, the neo-Australians who had been consistent finding something bad in the resource movement from savers to those who have urgent need to save. Unlike his students, MISES realized that no one borrows “money” to start, the products probably lend products with which possible productive lending money that is exchangeable for real resources with attention to the development of resources in a way that allows the profit after the loan.
What has been a basic for a long time the neo-Australians. They imagine that the borrowing act from banking money renting money at a lower rate, resulting in a higher interest rate lending it is devaluation. Except that if lending was the same as devaluation, no one will save. Get it?
The neo-Australians do not. In them, bank lending has “multiplier” properties, with which Bank A leases $ 100,000 from a savings, gives $ 90,000 to a debtor who then pulls money to Bank B, only for Bank B to offer $ 81,000 to a $ 71,000 debtor. Whether banks maintain 10 percent (in a normal world there would be no reserve requirements) is to lose the point.
What is the meaning? Neo-Australians imagine that $ 100,000 rented by Bank A by savings are soon transformed into millions of billions and seemingly trillions of dollars passing through the economy, all at the expense of the dollar. But for a problem. There are still only $ 100,000 moving around the economy. If you doubt it, ask why someone will borrow money borrowed will be directly exchangeable for much less? And exactly who will lend for the same reason?
The money ever, everything multiplied. If he did, no one would put money on the banks to start. In other words, the neo-Austrian explanation of the mythical multiplier money explains why it is a myth. If the savings were the same as devaluation, there would be no savings.
Better yet, banks will not rent savings in the first place. Why would it be? If the funds they pay will soon be several dollars of multiple dollars in useless, such as the neo-Australians who add conspiracy to imagine, there would be no banks. It is rarely the business that grows in the interim that becomes useless by mediation.
After that, we just have to go back to Berkshire Hathaway’s cash position. The theory of “Multipurpose Money” presupposes that what Buffett does not invest is rapidly proliferation as those who rent Berkshire’s stash (not sure that all $ 340 billion are in the hands Buffettly is not: that they are not reluctant to be from Big, Bad. “
Return in reality, if there was any validity in the neo-Austrian “multiplier of money”, Berkshire Hathaway would not have cash. Except for doing it. 340 billion dollars of value. And the $ 340 billion are the safest empirical elements beyond the simple reason that there is no reason for the neo-Australians to always cry over-Minority.
