While debate rages in financial circles about whether a second fiscal stimulus package is needed, investment icon Warren Buffett weighs in with a restrained thumbs-up.
“I think a second one may well be called for" to lift the economy out of recession, he said in an interview with ABC’s "Good Morning America" Thursday.
But he quickly injected a note of caution. A new program won’t be “a panacea,” because fiscal stimulus doesn’t have a strong effect immediately. In addition, "you hope it doesn't get watered down in many ways," Buffett says.
That was the problem with the $787 billion stimulus plan approved in February, he says.
"Our first stimulus bill ... was sort of like taking half a tablet of Viagra and having also a bunch of candy mixed in, ... as if everybody was putting in enough for their own constituents."
Buffett, CEO of Berkshire Hathaway, is worried about the economy. "We are not in a freefall, but we are not in a recovery either," he says.
"We were in a freefall really in the last quarter of last year, starting in the financial markets and spreading to the economy, and we had this huge change in behavior. That change hasn't changed."
The economic crisis is nearly unprecedented, Buffett says. “"I have never seen it quite happen like this,” he says.
“What happened was in late September, the American public saw money market funds break the buck. They saw commercial paper stop, they saw all kinds of things that they hadn't seen before," he says.
"It was a shock to the system."
Still, Buffett remains optimistic for the long term. "We are going to come out of this better than ever," he says.
"The best days of America, by far, lie ahead. But not next week or next month. I don't know exactly when we will come out, but we will come out big time."
Others agree with Buffett that the economy remains in a parlous state.
“We are into an epic post-bubble credit collapse,” David Rosenberg, former chief North American economist at Merrill Lynch, told CNBC.
“The transition to the next cycle is usually fraught … with double-dip risks, lingering deflation pressures and economic and financial fragility.”
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