Buffett Says American Economy Has Fallen “Off a Cliff”

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When Warren Buffett talks, everybody listens.

Bloomberg’s Erik Holm reports that billionaire Buffet of Berkshire Hathaway has proclaimed that America’s economy has “fallen off a cliff,” and that President Obama’s recent efforts at recovery may lead to monetary inflation higher than in the 1970s. Some inflation is acceptable and very normal when billions are infused into the money supply by the Treasury, but too much will hurt… too much.

“The economy can’t turn around on a dime,” Buffett said on a recent CNBC television broadcast. People are afraid and have changed the way they spend their money. Buffett recognizes that what he calls a recession (others say depression) will end and “future generations will live better than their parents.”

Bears eat profits

The bear market’s impact upon Berkshire Hathaway has been tremendous – shares have lost nearly half their value and the recession has put pressure on its affiliated companies to produce enough profit to fill in the gap. Several Berkshire holding companies are “just getting killed,” he said. Berkshire’s fourth-quarter net income fell 96 percent to $117 million, the firm said Feb. 28. Book value per share for 2008 was the worst performance under Buffett.

No more game-playing, please

While bailouts were necessary for the banking system and high-profile insurers like AIG, the scope of the damage goes beyond balloon bailout payments. Buffett said he doesn’t see “any moral hazard in the U.S. seizing an institution when shareholders are already almost wiped out.” So perhaps the march toward socialization of the banking system isn’t as far away as we’ve been lead to believe.

In reference to special investment schemes too many companies used to inflate profits, Buffett said that “corporate America has a lot of room to behave better.” Furthermore, the rich do not need tax cuts. Buffett also said – perhaps covering some of his own working habits – that CEO’s “shouldn’t be demonized” for using corporate jets that “help them be more efficient.”

I beg to differ with you, sir. Technology to host virtual meetings exists, and I’m sure it’s cheaper than jet fuel and maintenance. Keep that money and avoid having to lay off employees if you have any conscience at all. With jobs, they’re eligible for payday loans if they need them.

Even Buffett’s guilty

But even the Wizard of Omaha makes mistakes. Berkshire has committed to a $3 billion investment in Dow Chemical Co., which Dow will use to acquire Rohm & Haas Co. Considering the performance hit Dow and Rohm & Haas have taken, it’s no longer the “attractive deal” it once was.

“Our commitment, which looked smart at the time, looks dumb now,” he said.

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