5/19/09

US economy may need a dose of Viagra: Buffet

The investor showed support for a second stimulus package, arguing the first was like "half a tablet of Viagra with a bunch of candy mixed in"

Celebrated investor Warren Buffett said he was a huge bull on America and expected it to emerge from the recession "stronger than ever," but he told Good Morning America that he wouldn't be surprised if US unemployment hit 11 per cent and a second stimulus package was needed to kick-start the economy.

"I think a second one may well be called for. It is not a panacea. A stimulus is the right thing. You hope it doesn't get watered down," Buffet told ABC television's "Good Morning America" on Thursday.

"We're not in a freefall, but we're not in a recovery either," he added.

The CEO of Berkshire Hathaway compared President Obama's first $787 billion stimulus package to "half a tablet of Viagra and then having also a bunch of candy mixed in - it doesn't have really quite the wallop."

Buffett acknowledged that the actions taken by the government would lead to a bigger budget deficit. "It will happen and I worry about it, but I would worry more if we weren't doing anything right now." He compared the current situation to "a friend that is sinking in quicksand."

"You throw them a rope and they tie it around themselves and a car pulls them out, they may dislocate a couple of shoulders but it's still the right thing to do. And we are doing things which will have negative consequences down the road, but they are still the right thing to do to get us out of this particular economic quicksand that we are in."

Buffett said Americans will have to give the economy time to recover, particularly when it comes to surplus houses.

"The American public will get disappointed, but it is going to take time to work through the overhang of houses, for example," he said. "You can't cure that in a day or a week or a month, so a stimulus doesn't cure that."

The world's second richest man known as the "Oracle from Omaha" because of his history of successful investments also shared his top three pieces of advice for average investors who want to grow their savings.

Number one: "If it seems too good to be true, it probably is."

Number two: "Always look at how much the other guy is making if he is trying to sell you something."

Number three: "Don't go into debt."

"Stay away from leverage," he said. "Nobody ever goes broke that doesn't owe money." He said America's "binge," was fuelled largely by over-borrowing by both individuals and companies. "The US public as a whole has gotten into problems from leverage, financial institutions have gotten into problems through leverage," said Buffett. "A long, long time ago a friend said to me about leverage, 'If you're smart you don't need it, and if you're dumb, you got no business using it."

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