2008-05-25 22:31:16
Warren Buffett: "US Already in a Recession"
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In an interview published in Germany's Der Spiegel weekly on Sunday, Warren Buffett sought to douse any Memorial Day holiday cheer by proclaiming that the United States was "already in a recession".
If you are wondering who Warren Buffett is, here is a quick primer. He has a personal estimated wealth of $62 billion dollars US, which makes him the richest person in the world. He runs Berkshire Hathaway, an investment vehicle that invests in companies and sometimes purchases them whole. Berkshire Hathaway last traded at $123,970, which values the company at a staggering $191.91 billion dollars. Berkshire Hathaway owns extremely large positions in such companies as Coca-Cola, Kraft and Wells Fargo. The man has made a billionaire of himself and millionaires of many others through his investing prowess. The bottom line? The man knows what he is talking about.
Anyways, Buffett stated that the United States may not be in a recession as "defined by economists", but that the average person is certainly feeling the effects. A recession is defined as a decline in a country's GDP (gross domestic product) two quarters in a row. The last recession in the United States was the 9/11 inspired recession that began in March of 2001. Before that, there was an uninterrupted period of growth that was the longest in United States history - 120 months. (note: the 2001 recession didn't technically have two quarters of declining growth in a row, but was still considered by many to be a recession, and a severe one to boot).
Buffett has been decidedly negative on the US economy for some time, so his comments shouldn't come as too much of a shock. Buffett has grown frustrated with the lack of investment opportunities in the United States, and is currently traveling through Europe on an extended "shopping trip", trolling for possible acquisitions.
Buffett went on to say that he expects that this recession will be "deeper and longer than what many think".
What could be the cause of a "long and deep recession"?
Any number of reasons, including: continued rise in oil and commodity prices which leads to less buying power for the average consumer and greater operating costs for companies, a continued decline in US real estate values, a continued weakening of the US dollar, continued problems in the credit market, etc.
Is Buffett right or wrong? Are we in for a prolonged recession? We'll find out soon enough, but I learned a long time ago that it is unwise to bet against Buffett.
Filed under: The Economic Meltdown | General Market News
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