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https://open.substack.com/pub/paulkrugman/p/why-yo...

I don’t think many are prepared for the disaster that will unfold when an idiot gets his hands on the Federal Reserve. 🤬

I know I’m not prepared!

I don’t think many are prepared for the disaster that will unfold when an idiot gets his hands on the Federal Reserve.

Is Berkshire prepared?

Krugman:
In fact, let me make a prediction: Trump may initially force the Fed to cut short-term interest rates, but quite soon long-term interest rates will go up, not down, because forward-looking investors will realize that politicized monetary policy is feeding inflation, and even a Trumpified Fed will eventually be forced to raise rates to contain the damage.

Let me acknowledge that so far markets aren’t pricing in the Turkey-style inflation that, it seems to me, is almost inevitable once Trump gets to replace Powell. As far as I can tell, TACO — Trump always chickens out — rules the narrative on inflation, just as it does on tariffs.

If very high inflation does happen, what does that do to Berkshire?

If very high inflation does happen, what does that do to Berkshire?

An easy answer is that it probably raises the earnings on cash holdings, but that's not real value creation. It could arguably make future acquisitions (either common stock or outright acquisitions) more attractive to the extent that valuations decline as interest rates increase.

For me, the concern would be in any long-term contracts, particularly in the insurance subs. If we price policies based on inflation expectations that turn out to be too low, the future (inflated) claims will lead to painful results in those insurance subs. Probably easily manageable in annual renewals (e.g., auto), less so in other policies.

Of course, you can then argue there's a (maybe more important) macro effect where less secure or higher leveraged competitors are crushed by inflation and Berkshire ends up being the last man standing.

So ¯\_(ツ)_/¯

...quite soon long-term interest rates will go up, not down, because forward-looking investors will realize that politicized monetary policy is feeding inflation...

Speaking as an observer of the financial world from outside the US, that damage is likely already done, even if it hasn't yet showed up in asset prices. No sensible person would continue to assume that the Fed will be independently run by a sensible person in future. I now assume short term political considerations will be a bigger factor than prudent macroeconomics. True, the logical expectation is unwarranted low interest rates and the predictable inflationary acceleration, but it may also involve the Fed finding regulatory ways to divert capital towards the friendly. Crypto bros spring to mind.

Jim

Can someone please outline a “US divestment for dummies” on what a boiled-frog US investor should do to mitigate harm? All I own is cash and Berkshire, and for some reason I’m frozen with inaction.

what a boiled-frog US investor should do to mitigate harm? All I own is cash and Berkshire, and for some reason I’m frozen with inaction.

Inflation is not so bad. The main protection is to own productive assets (businesses, basically), rather than cash or fixed income.

On average equities tend to hold their value (if not their price) in both low inflation and reasonably high inflation. It's only a big problem when inflation is so high that the economy breaks, which is not good for anybody. That doesn't usually kick in till you see inflation rates meaningfully above ~6%.

It depends a bit on what you want from your portfolio, too. If you are one of the few who primarily want the portfolio to fund income that will be relatively resilient in the face of a long bear market, I posted a random thought on that front recently. https://www.shrewdm.com/MB?pid=42332882
But that goal doesn't apply to a large fraction of investors, most of whom are (rationally) interested mainly in longer term rate of return or (less rationally) avoiding short term price dips.

For whatever it's worth:
That strategy suggests the enticing possibility of a ~4.5% initial dividend yield these days, with the cash payout rising at around 7-9%/year, with no rolling year's income much worse than 12-15% lower than the peak to date. Assuming you're spending all dividends rather than reinvesting, after 10 years you might get a yield of maybe 9-10% of your original portfolio size. Things are never quite as nice as a back test, but the strategy was created five years ago and has been chugging along. Unlike long term buy and hold of a dividend portfolio, the yield tends to stay high during recessions because the inevitable few big dividend cuts are mitigated by the simple expedient of replacing those stocks with other good firms that still have decent yields. Once per quarter you'd replace about 6 stocks on average, which is work but not an unreasonable amount of work. Most picks are held for quite a long time.

Jim

Paul Krugman has made numerous bad calls through the years as his left political slant has impacted his ability to think and articulate critically. You would do well to avoid letting his writing influence your investment decisions.

I agree with Jim, one of the few who writes what I have thought for nearly 50 years, that equities/business do hold their value in higher but maybe not super-high inflation.

With a submissive fed chair Trump would have to skill-up his grievance, blame, and condemn theme, that's his best seller. He's too good with it though, he'll find an out if things go badly...but investors probably won't.

Krugman aside, do you think Trump having total control of the Fed would be a positive thing?

Trump recently wrote that because the US economy was booming, the Fed MUST CUT RATES! I’m not sure he has a firm grasp on economic theory. 🤦‍♂️

Trump recently wrote that because the US economy was booming, the Fed MUST CUT RATES! I’m not sure he has a firm grasp on economic theory. 🤦‍♂️

I'm not sure either. He thinks other countries pay tariffs not Americans!

"I am going to put tariffs on other countries coming into our country, and that has nothing to do with taxes to us. That is a tax on another country!" -DJ Trump

"We’re going to be a tariff nation! It’s not going to be a cost to you. It’s going to be a cost to another country." -Trump

"It’s not a tax on the middle class. It’s a tax on another country." -Trump

https://www.cnn.com/2024/09/09/politics/fact-check...

https://www.factcheck.org/2024/11/trumps-agenda-ta...

I’m not sure he has a firm grasp on economic theory.
...
I'm not sure either. He thinks other countries pay tariffs not Americans

He did get rather testy when Walmart pointed it out to people. The mystery taxpayer has no clothes?

Despite so many odd "experiments" going on in the steering of the US economy, I rather expect aggregate US corporate profits to hold up pretty well in the next several years, since they are almost necessary (in the current situation) macroeconomic flip side of the giant government deficit which clearly isn't going to go away. For anyone interested in the reasoning, I highly recommend this post about the Kalecki Profit Equation to get a feel for it. https://blog.variantperception.com/p/understanding...

Jim

I think most of you are assigning way too much importance/power/effectiveness to the Federal Reserve's current toolkit (Fed Funds rate and Balance sheet/QE/QT being the primary current tools).

If fed funds drops by 2% tomorrow, there is no reason to believe that would increase inflation or stimulate the economy.

From my seat, most of the Federal Reserve's tools are just as likely to have the opposite effect as the intended effect.

If fed funds drops by 2% tomorrow, there is no reason to believe that would increase inflation or stimulate the economy.

That's the usual outcome, generally after a lag of about 18 months, in the same way that a 2% increase usually dampens economic activity. It doesn't always work precisely or indeed reliably, but it wouldn't be correct to say there is no reason to believe it.

As an aside, a 2% cut in the policy rate also usually causes the US dollar to drop in value, other things being equal. It's quite remarkable how weak the dollar has been lately given the large interest rate gap between dollars and other currencies, particularly euros, which yield far less. Usually with a gap this large the dollar would be rising strongly. This has led some commentators to speculate that a big interest cut would knock out the last strut holding the dollar up even as far as it has this year, and cause a real drop.
Here is a graph showing the correlation between the interest rate gap and the euro/dollar exchange rate in the few years up to January this year.
https://images.contentstack.io/v3/assets/blt40263f...
If that deep link doesn't work, it's the second graph here https://www.tastylive.com/news-insights/eur-usd-ec...
As of today, the two year bund/bill gap is a full 2.0%. From that graph you'd "expect" FX at about $1.06 to the euro, but it's at $1.17, meaning the dollar has slid this year a bit more than 10% more than what you'd expect.

Another view of the same thing: if people aren't choosing where to put their cash based on the highest returns as they usually do, they might be choosing where to put it for other reasons. For anyone wanting to reduce exposure to the dollar, the most obvious next candidate is the euro. The biggest effect so far seems to be a moderate slow drifting of a lot of folks into euros and euro-area assets, which is driving up the euro, mainly against the US dollar but also in general. This is not good for the Euro zone economy or the profits of its companies, who are in any case seeing weakness and other headwinds like tariffs and the costs of war, so plowing into euro zone stocks thinking that they're a haven from all this geo-macro chaos might not work out fabulously. Plowing into euro cash has worked beautifully, however.

Jim

Another view of the same thing: if people aren't choosing where to put their cash based on the highest returns as they usually do, they might be choosing where to put it for other reasons.

"UK firms lose taste for US investment, Deloitte survey shows"
https://www.reuters.com/world/uk/uk-firms-lose-tas...

Elan

Paul Krugman has made numerous bad calls through the years as his left political slant has impacted his ability to think and articulate critically.

Can you name an economist who hasn't made “numerous bad calls”? across a career of 50 years?

Irving Fisher: “We have reached a permanent high plateau”

Alan Greenspan: “I never thought that banks could do something so destructive”

Paul Samuelson: “The socialist economy of the Soviet Union seems to work for them”

Janet Yellen: “transitory inflation”

Ravi Basra: “The Great Depression of 1990” Nice book. Totally wrong, of course.

Alan Greenspan (again) “We need double digit rates to prevent future inflation” (said in 2007, just before a more than decade long period of near zero rates - and no inflation.

I won’t bother mentioning Adam Smith’s overly-simple views of economics, or Thomas Malthus’ predictions of global doom, and heck, Keynes predicted a 15-hour work week by now.

I believe you’re letting your politics influence your evaluation of economists, rather than the other way around. If anyone has been wildly, catastrophically wrong over the past decades, it’s been Greenspan, a Libertarian in view and a free marketeer extraordinary who ushered in the elimination of budget surpluses with the GWB tax cuts, and championed free-handed banking regulation which led directly to the disaster of 2008.

Janet Yellen: “transitory inflation”

I dunno, that was correct, in the end. The transit just lasted a bit longer than they expected : )

US rolling-year monetary inflation broke out in early 2021, and was back down to that level two years later, one big "transient" bump in the road. A single step up in nominal prices, in effect.
https://www.newyorkfed.org/research/policy/mct#--:...

The norm since then has been higher than the norm before, but neither level is particularly high or troublesome (to date, anyway). All the prints have been in the 2.5% to 3% range for the last two years.

There are several things which can be expected to drive a country's local prices higher if they happened. For example a falling dollar, large government deficits, taxes on imported goods, trade disruption, or inappropriately low interest rates.

Jim

Paul Krugman has made numerous bad calls through the years as his left political slant has impacted his ability to think and articulate critically. You would do well to avoid letting his writing influence your investment decisions.

More and more intelligent people are starting to see the obvious!

I have a lot of friends who are Democrats, and they’re idiots. I always say they have big hearts and little brains. They do not understand how the real world works. Almost every single policy rolled out failed.”
Jamie Dimon

https://fortune.com/2025/07/11/jamie-dimon-democra...

Can you name an economist who hasn't made “numerous bad calls”? across a career of 50 years?

Now you're getting somewhere! Have your politics and opinions, but don't listen to anyone who doesn't consistently make you money. That's a short list for me, and I don't have any economists on it.

I do admit that economics is hard. As Warren has often said "...and then what?"

...but don't listen to anyone who doesn't consistently make you money.

The problem is that there is no such person. There is no such thing as consistently making money, as every career of advice or investing will have some hits and misses. Mr Buffett, GOAT, is not immune. So, your rule could be rephrased as "don't listen to anyone". That probably isn't the optimal route to wisdom or wealth.

I have sometimes used expensive economics advice to inform my investing. They were wrong frequently. The losses were small, and the gains were truly spectacular, so the advice was certainly worth the cost.

I find there are many models and sources of information which provide an outlook on economics and markets, which are not reliably correct, but are far far better than a coin toss. The art is not to avoid such things, but to find ways to use them in such a way that you benefit when they're right and don't lose materially when they're wrong. Most people don't have a very good feeling for things that are neither random nor predictable, but in that grey zone between, which is often the most interesting section of the world.
https://xkcd.com/2370/

Jim

Janet Yellen: “transitory inflation”

I dunno, that was correct, in the end. The transit just lasted a bit longer than they expected : )

I agree, but the common perception was “a few months”, not “a few years.” On such misunderstandings elections are won and lost.

That said, I’ve almost never seen nor read of an inflation bump with disappeared quickly. Once the increases get baked in across the full economy they tend not to go away. A single instance can rise or fall (eggs, oil) but if you have a global, common bump, it’s devilishly hard to get it all back into the same 10 ounce can.

I didn’t mean to infer some people are never wrong.

To me, consistency in investing means a strong track record with more wins than losses, but not perfection.

That said, I’ve almost never seen nor read of an inflation bump with disappeared quickly. Once the increases get baked in across the full economy they tend not to go away. A single instance can rise or fall (eggs, oil) but if you have a global, common bump, it’s devilishly hard to get it all back into the same 10 ounce can.

For sure.

What's even more pernicious is that even when a bout of inflation ends, people don't believe it. (The recent US spike has been over for a couple of years now, for example--I wouldn't see any reason to think of 2.5%-2.9% as a big issue). One intuitively thinks that when the inflation is over, things will go back to the way they were. From a monetary point of view that may be true, but nominal prices are still up from what one remembers even if they are no longer rising, so it still *feels* like ongoing inflation.

Visiting Canada is quite a shock for me, for two reasons. One, France was almost unique in not having had a really big inflation spike recently. In much of Europe the catalyst was the huge rise in natural gas prices, but they were capped in France, so the general spread through the economy wasn't triggered as strongly. And secondly, I haven't spent much time in Canada in recent years, so my memory of prices is old--every price seems to be a wild surprise! Everything feels like a bit of sticker shock.

Jim

There are several things which can be expected to drive a country's local prices higher if they happened. For example a falling dollar, large government deficits, taxes on imported goods, trade disruption, or inappropriately low interest rates.

Whew! It’s comforting that none of these things are pertinent today. 😉

There are several things which can be expected to drive a country's local prices higher if they happened. For example a falling dollar, large government deficits, taxes on imported goods, trade disruption, or inappropriately low interest rates.
...
Whew! It’s comforting that none of these things are pertinent today.

Ah, you noticed. It would seem that another burst of US price inflation is certainly possible.

In that context, the current TIPS yield at over 2% doesn't look so bad. In the sense that you'd expect people to be bidding up their prices to lock in the protection they offer, but they aren't. The five year breakeven rate (gap between bonds and TIPS) implies an expectation of inflation at only 2.44% in the next five years. (3 years ago that expectation peaked at 3.5%, so traders are expecting much LESS inflation than they were) The current figure is so modest that the TIPS seem to be the slam dunk of a deal compared to T bonds. Not that I want to own either, but somebody does.

Jim

I have a lot of friends who are Democrats, and they’re idiots. I always say they have big hearts and little brains. They do not understand how the real world works. Almost every single policy rolled out failed.”
Jamie Dimon

I guess Jamie was asleep during the pandemic. Almost every single Republican voted against the stimulus package. Mitch McConnell led the charge and the predictions of disaster were everywhere including from Jamie.

Meanwhile countries which did not take aggressive action got hammered, those which did with stimulus or other measures did much better.

Who came out best of all? Not France, not China, not Japan, not Germany, not any South American Country, not Mexico, not Canada. Not Germany ot the UK.

Want the answer? It was the U.S.

Inflation? Yes. Best growth post pandemic? The U.S. best job creation? The U.S.

Here’s an idea: tell Jamie to stick to overcharging his customers. At least he’s good at that.

I have a lot of friends who are Democrats, and they’re idiots. I always say they have big hearts and little brains. They do not understand how the real world works. Almost every single policy rolled out failed.”
Jamie Dimon

Yes these idiots with all their failed policies...
Clean air and water standards, worker safety protections, 40 hour work week, social security program, civil rights movement,
equal rights movement, discrimination protections, school lunch programs, organized labor, child labor laws, minimum wage, medicare, employee health care benefits,
Americans with Disabilities Act, the Freedom of Information Act, Obamacare, the Voting Rights Act, food and drug safety regulations, collective barganing....
and everything else they have done to put power back in the hands of the individual and out of the hands of the ruling class and corporate elite.

Meanwhile take a gander at some of the failed, wasteful garbage that Dimon/JP Morgan is getting rich selling:
JPMorgan SMID Cap Equity C Fund ODMCX
Morningstar rates it 1 star. (A monkey with a dartboard could beat it!)
The expense ratio is 1.59%. (10X what a comparable index fund would charge.)
It has underperformed the index in every time period imaginable, YTD, 1-Year, 3-Year, 5-Year, 10-Year and 15-Year! Total fail!
https://www.morningstar.com/funds/xnas/odmcx/quote

Or...
Another incompetent, joke of a Fund is JPMorgan Small Cap Value R2 JSVZX.
Morningstar rates it 2 stars. (A monkey with a dartboard...)
The expense ratio is 1.49%. (10X what a comparable index fund would charge.)
It has underperformed the index in 1-Year, 3-Year, 5-Year, 10-Year and 15-Year! A total failure!
https://www.morningstar.com/funds/xnas/jsvzx/quote

I could go on and on...
Go to Morningstar and see for yourself how many JP Morgan funds are nothing more than unethical money grabs.
JP Morgans wasteful, garbage, active funds have cost American investors billions of dollars and for him to pretend like he cares anything about failure, wastefulness or how the real world works is truly laughable...
John Bogle: "If the data do not prove that indexing wins, well, the data are wrong."
Is Jamie Dimon too dishonest to admit this truth or is he too dumb to understand how the "real world works?"
Asking for a friend.

I have a lot of friends who are Democrats, and they’re idiots. I always say they have big hearts and little brains. They do not understand how the real world works. Almost every single policy rolled out failed.”
Jamie Dimon
...
Yes these idiots with all their failed policies...

I think the better conclusion is not to point out the policies that have not failed, but to realize that someone who says such a blanket statement is not being rational. When us-versus-them takes over your brain too far, the "them" group can only ever be wrong for the simple reason that axiomatically only the "us" group can be correct or righteous.

I hadn't realized that Mr Dimon had fallen so deeply into that mental pit, so it's good to know.

Jim

”I have a lot of friends who are Democrats, and they’re idiots. I always say they have big hearts and little brains. They do not understand how the real world works. Almost every single policy rolled out failed.”
Jamie Dimon

That’s a stunningly crass statement from a high level CEO, calling his dem “friends” clueless idiots? That reflects more on him than his friends, IMO.

I thought this was unusual enough to where I asked Perplexity for the source quote:

“I have a lot of friends who are Democrats, and they’re idiots. I always say they have big hearts and little brains. They do not understand how the real world works. Almost every single policy rolled out failed.”

was originally reported as remarks made by Dimon during a foreign ministry event in Dublin, Ireland, in July 2025. Multiple reputable outlets covered these comments, but the first and primary reporting source is Bloomberg. Other major financial and news publications, such as Fortune, Yahoo Finance, and Moneycontrol, explicitly cite Bloomberg as the origin of the direct quote"


..and while it forget to list Bberg among the references, here's a link to 11 July Fortune: https://fortune.com/2025/07/11/jamie-dimon-democra...

So
- yes, he said it, and
- I agree with Jim/mungo that it is a necessary filter to other remarks by Mr Dimon going forward. I hadn't really thought of him as stale-dated until now (Jamie, not Jim)

-- sutton

Mungofitch wrote:

I hadn't realized that Mr Dimon had fallen so deeply into that mental pit, so it's good to know.

Me neither! I was kinda shocked by that comment.

Clearly, there is a big, treacherous, step between running a bank and managing a national economy.

I have always found it odd how many people think it would be a good idea for businessmen to run the government (or, indeed, the armed forces). I'm neither a politician, nor a businessman, nor a soldier, but I have spent enough time with all of them to know that (1) I couldn't do what they do and (2) they're not, on average, all that much alike!

Baltassar

<<<From a monetary point of view that may be true, but nominal prices are still up from what one remembers even if they are no longer rising, so it still *feels* like ongoing inflation.>>>

This is so true. We happened to have lived in Germany when the transition from the DM-Euro happened. We were there only for a few years but the inflation was so real. Essentially, restaurant bills roughly doubled (roughly the conversion rate of Euro-DM)under our noses. For those living permanently there, prices have remained at the elevated plateau ever since. Some of our family friends have simply opted to eat out less. So, this particular, “non-feeling”inflation is 24 years old.

Welcome any thoughts from those who live in Germany.

I have a lot of friends who are Democrats, and they’re idiots. I always say they have big hearts and little brains. They do not understand how the real world works. Almost every single policy rolled out failed.”
Jamie Dimon

Like many others, I too was surprised to read this. However...

In this this thread, I think people are reading this as if Jamie was referring to all policies. From reading the early reporting such as from https://news.bgov.com/bloomberg-government-news/di...

I believe the comment was made specifically in the context of diversity, equity and inclusion.

This is a topic where I guess it is a little less surprising to find people expressing strong views.

StevnFool.

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