Last updated: 8:57 am
Our economy is sunk! Legendary billionaire investor Warren Buffettyesterday called the fiscal crisis "an economic Pearl Harbor" - and he doesn't expect it to recover anytime soon. The "Oracle of Omaha," so named for the headquarters of his company, Berkshire Hathaway, said the US economy has "fallen off a cliff" and the current financial situation is "close to the worst case" that he imagined six months ago. LOWRY: OBAMA CAN'T STOP THE STORM "You have to recognize that it is an economic Pearl Harbor," Buffett toldCNBC's "Squawk Box" show during a three-hour interview. "I've never seen the consumer or the Americans just generally more fearful than this," he said. "And you can get fearful very quickly, but you don't get confident, you know, in five minutes. "Not only has the economy slowed down, but people have really changed their habits like I haven't seen," said Buffett. As if to underscore that message, the Dow Jones industrial average continued its long, agonizing skid by closing the day at 6547.05, down 79.89 points, or 1.21 percent. But despite Buffett's gloomy analysis of the US economy's dire straits, he's optimistic about its long-term financial prospects. "Everything will be all right," said Buffett, who predicted that the US economy will be "running fine" in five years. "We do have the greatest economic machine that man has ever created." Before then, however, more pain is on the way, said Buffett, whose company suffered a 62 percent drop in profit in 2008. He said he believes that the national unemployment rate - already at a 25-year high - will go a "fair amount" higher before the recession ends. And he said inflation has the "potential" to exceed levels seen in the 1970s, when oil price hikes shocked the economy. Buffett called on all members of Congress to end their squabbling about how to address the economic crisis and back President Obama's efforts to stanch the financial bleeding and spark a recovery. "What's required is a commander in chief that's looked at like a commander in chief in a time of war," he said. He continued with that war metaphor as he defended government intervention in the economy even though it will cost taxpayers. "We're in a big war, and we're going to use money to fight it," Buffett said. "The people that behaved well are no doubt going to be finding themselves taking care of the people who didn't behave well." ================ But it's shaping up to be even worse than the original. According to the IMF, if we follow our current course, this time there is no prospect of the debt burden evercoming back down again - or at least not in Tyler's lifetime.
Now, trust me -that is a world we really don't want to inhabit. Interest rates pushed up by persistently heavy government borrowing, productive investment crowded out, high taxes, low or non-existent growth, high unemployment and probably high inflation as well. But you know the really worrying bit? This doomsday machine is not triggered by our current Pearl Harbour at all. Pearl Harbour we could handle. No, the real driver is the increasing burden of our ageing populations. According to the IMF, for the UK, the net fiscal cost of our Pearl Harbour will be about 30% of GDP, or around £500 bn (net present value). That's bad enough, but it pales into insignificance compared to the cost of our ageing population. That comes in at an horrendous 330% of GDP, or around £5trillion in today's terms. Or £200 grand for every single household. We have only two serious options. First, we could shoot everyone over say the age of 65. But since Tyler is fast closing on 65, maybe that's not such a great idea. So let's settle on the second option - raising the pension age much more than currently planned. After all, as we've blogged before, when state pensions were first introduced, most people died before they got them. So in today's terms, a pension age of 75 would be markedly more generous. It may sound tough. But post-Pearl Harbour we are going to have to think the unthinkable.BANZAI BUFFETT: FISCAL 'PEARL HARBOR' MEANS 5-YEAR WAR
By DAN MANGAN
March 10, 2009
Posted: 2:14 am
March 10, 2009TUESDAY, MARCH 10, 2009
Pearl Harbour Economics
A debt that will live in infamy
According to Warren Buffett, the current crisis is an "economic Pearl Harbour". And for taxpayers that's a very scary prospect.
Because the original played out very badly. Public spending went through the roof, and government debt ballooned to unprecedented levels which took us three decades to work off.
Here's the IMF's chart showing exactly what happened to official government debt in three of the main WW2 combatants. It was hugely expensive, and by 1945 the UK had clocked up an eye-watering debt burden in excess of 250% of GDP:
It wasn't until the 70s that the UK's burden returned to pre-WW2 levels, and that was through growth and inflation rather than actual debt repayment.
And now here we go again - Pearl Harbour, big spending, big debt, big problem.
Here's their latest projection with an accelerating accumulation of government debt across the G20 economies for the next 40 years:
Tuesday, 10 March 2009
WHAT THE H*LL HAVE WE BEEN TELLING YOU FOR THE PAST 5 YEARS....MAYBE NOW YOU'LL SUPPORT THIS SITE.
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