Buffett Says Consumer Behavior May Be Forever Changed by Recession
By Katie Escherich and Bianna Golodryga
Billionaire investor Warren Buffett believes that the U.S. will emerge from the current economic recession â€œstronger than ever,â€ but he said the behavior of the American consumer may be forever changed.
â€œWe were on a binge before,â€ the CEO of Berkshire Hathaway told â€œGood Morning Americaâ€ in an exclusive interview. â€œI mean, we are not saving extraordinary sums now but the savings behavior has changed. … I donâ€™t necessarily think that we will go back to behaving the way that we were two years ago.â€
The man known as the â€œOracle from Omahaâ€ because of his history of successful investments, shared his top three pieces of advice for average Americans who want to grow their savings and keep their money safe.
Number one: â€œIf it seems too good to be true, it probably is.â€
Number two: â€œAlways look at how much the other guy is making if he is trying to sell you something.â€
Number three: Donâ€™t go into debt.
â€œStay away from leverage,â€ he said. â€œNobody ever goes broke that doesnâ€™t owe money.â€
The â€œbinge,â€ he said, was fueled largely by over-borrowing by both individuals and companies.
â€œThe U.S. public as a whole has gotten into problems from leverage, financial institutions have gotten into problems through leverage,â€ he said. â€œA long, long time ago a friend said to me about leverage, â€˜If youâ€™re smart you donâ€™t need it, and if youâ€™re dumb, you got no business using it.â€™â€
At a time when many college graduates face uncertain futures and are struggling to find jobs, Buffett said he still believes that â€œinvesting in yourself is the best thing you can do. Anything that improves your own talents. And I always advise students to do that, high school students, college students and obviously investing in your children is, in some ways, investing in yourself.â€
No matter what happens in the economy, â€œif you have true talent yourself, and you have maximized your talent, you have a terrific asset.â€
Warren Buffett on Budget Deficit
Buffett showed some support for the idea of a second economic stimulus package, but cautioned that it should be handled differently to restore the American publicâ€™s confidence.
The number of earmarks included in the bill were â€œpart of what has affected the American psyche,â€ he said. â€œWhen we go on and we talk about earmarks and that sort of thing, and then we get the kind of behavior weâ€™ve got, I mean, that is not reassuring to the American public.â€
He called the first stimulus â€œlike taking half a tablet of Viagra and having also a bunch of candy mixed in, you know, as if everybody was putting in enough for their own constituents.â€
He also cautioned that the American public will have to be patient and give the economy time to recover, particularly when it comes to the surplus of houses on the market that resulted from overbuilding.
â€œThe American public will get disappointed, but it is going to take time to work through the overhang of houses, for example,â€ he said. â€œYou canâ€™t cure that in a day or a week or a month, so a stimulus doesnâ€™t cure that.â€
Buffett also expressed confidence in Federal Reserve Chairman Ben Bernanke, and dismissed rumors that the Fed chief may not return once his current term is up at the end of the year.
â€œWell, I think he should keep his job,â€ he said. â€œAnd as to what people say, well they are going to say something, they have always talked about Fed chairmen when their terms are coming up. But taking Bernanke out of the lineup would be like if you had the Ryder Cup, taking Tiger Woods out of it. It just doesnâ€™t make any sense.â€
Buffett acknowledged that the actions taken by the government will lead to an even bigger budget deficit. â€œIt will happen and I worry about it, but I would worry more if we werenâ€™t doing anything right now.â€
He compared the current situation to â€œa friend that is sinking in quicksand.â€
â€œYou throw them a rope and they tie it around themselves and a car pulls them out, they may dislocate a couple of shoulders but itâ€™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.â€
Warren Buffett on Health Care Reform
Asked if he agreed with President Obama that passing health care reform would help limit the ballooning budget deficit, Buffett replied, â€œI really donâ€™t think that Iâ€™m an expert on health care,â€ but said the system needs to be drastically changed.
â€œI think itâ€™s a moral imperative that everybody have access to health care,â€ he said. â€œItâ€™s a terrible problem.â€
Despite the pressing economic concerns, he said he would be in favor of the government devoting resources to devising a plan for health care reform â€œif thereâ€™s a well-thought-out program that actually promises to bring down the cost of health care.â€
â€œWe are spending 2 trillion plus on health care a year,â€ he said. â€œIf we could come up with something that even maintains the present cost and promises not to have a greater-than-inflation rate of gain in the future, and brings health care to the people that arenâ€™t getting it now, then I think that will be a huge improvement. I donâ€™t think that is an easy task.â€
In anyoneâ€™s lifetime, â€œyou will see many recessions, some bubbles,â€ he said, but heâ€™s optimistic about the future.
â€œIf we sat down here [at the] start of the 20th century, and I said there is going to be the panic of 1907, there is going to be a world war. It will be followed by a Great Depression with 35 percent unemployment, and then we will have another war that it looks like we are going to lose, and then we are going to have a nuclear bomb like no one has ever seen … by the time I got through, youâ€™d be crying. But the Dow went from 66 to 11,497 during that same century, and the average personâ€™s standard of living went up 7 to 1. We have a system that unleashes human potential like nobody has ever seen, and it has done it in the past, it will do it in the future. So Iâ€™m a huge bull on America — it does let people like you and me do far more than we could have done 200 years ago.â€