Buffett Says U.S. May Need a Second Stimulus Package
By Andrew Frye, Betty Liu and Erik Holm
June 24 (Bloomberg) -- Billionaire investor Warren Buffett said the U.S. may need a second economic stimulus package as unemployment is poised to continue rising.
“It looks like we’re going to need more medicine, not less,” Buffett said today in a Bloomberg Television interview. “We’re going to have more unemployment. The recovery really hasn’t got going.” Buffett is chairman and chief executive officer of Omaha, Nebraska-based Berkshire Hathaway Inc.
President Barack Obama signed a $787 billion stimulus bill in February, which included tax cuts and spending on infrastructure projects intended to save or create 3.5 million jobs. The Federal Reserve, under Chairman Ben S. Bernanke, has doubled its balance sheet to help thaw credit markets. In the first quarter, the U.S. gross domestic product plunged, and Berkshire reported its first loss since 2001.
The economic rebound “will be a slow process,” said Buffett, who predicted the joblessness rate will exceed 10 percent. The economy “hasn’t turned yet. There’s no telling how long it will take. It will happen.”
Buffett praised Bernanke’s handling of the slide in confidence that caused banks to curb lending after the bankruptcy of Lehman Brothers Holdings Inc. in September. Bernanke is “the right man” to lead the central bank and should be given a second term, Buffett said.
The economy has lost about 6 million jobs since the recession began in December 2007. The U.S. unemployment rate jumped to 9.4 percent in May, the highest level in more than 25 years, and Obama predicted yesterday the jobless figure will exceed 10 percent by year-end.
Investors and consumers “went crazy on leverage” and will need time to reduce their debt before a recovery can take shape, Buffett said.
Separately, he told Fox Business Network that he intends to keep his Goldman Sachs Group Inc. warrants. The New York-based bank said in September it would sell $5 billion in preferred stock to Berkshire. Buffett gets a 10 percent dividend, or $500 million a year, and gained warrants to buy $5 billion of common stock at $115 each over the next five years.
Goldman Sachs advanced $1.46, or 1 percent, to $142.65 at 4:15 p.m. in New York Stock Exchange composite trading. Berkshire rose $1,000, or 1.2 percent, to $86,800.
Buffett also warned in a CNBC interview that the U.S. may face “high rates of inflation” because of government spending designed to ease the financial crisis.
Buffett, 78, ranked the world’s second-richest man by Forbes magazine, made the remarks in advance of a lunch with Zhao Danyang, general manager of Pureheart Asset Management Co. in Hong Kong. Zhao bid more than $2.1 million last year to win Buffett’s annual charity auction to support San Francisco’s Glide Foundation, which provides food, medical care and other services to the poor.
Zhao brought his wife, son and friends to the lunch with Buffett at Manhattan’s Smith & Wollensky steakhouse today. Zhao’s bid last year was three times the previous record for the lunch, and the largest ever for an EBay Inc.-sponsored charity auction.
Winners typically wait a year before dining with Buffett. This year’s fundraiser is in its fourth day on the Internet auction site. Bidding stood at $135,678 at 1:30 p.m. New York time today and is set to close June 26. In past years, bidders waited until the last minutes before driving up the price. The current auction has attracted 56 bids.
Alan Stillman, the founder of the steakhouse, is donating $10,000 to Glide for the right to host the event. He said today that he entered his own bid on the auction two years ago, without winning.