Billionaire Warren Buffett says the economy has "fallen off a cliff" over the past six months and consumers have changed their habits in remarkable ways.
Buffett said Monday during a live appearance on CNBC that current economic turmoil has basically followed the worst-case scenario he envisioned.
"It's fallen off a cliff," Buffett said. "Not only has the economy slowed down a lot, but people have really changed their habits like I haven't seen."
Buffett said he's seen the changes showing up in the results of Berkshire Hathaway Inc.'s subsidiaries. He said Berkshire's jewelry companies have suffered, but more people have been willing to switch to Geico to save money on car insurance.
Buffett predicted that unemployment will likely climb a lot higher before the recession is done, but he also reiterated his optimistic long-term view.
"Everything will be alright. We do have the greatest economic machine that's ever been created," Buffett said.
Buffett said the nation needs a clear message from the government about what the problem is in the economy and what will be done. He said all 535 members of Congress should set aside partisan bickering to deal with what Buffett has called an economic Pearl Harbor.
"What is required is a commander in chief that's looked at like a commander in chief in a time of war," Buffett said.
Fear and confusion has been driving much of consumer and investor behavior in recent months, Buffett said. The nation's leaders need to clear up the confusion about the economy before anyone will become more confident, he said.
A little over a week ago, Buffett released his annual letter to shareholders describing the worst of his 44 years at the helm of Berkshire. The Omaha, Neb.-based company reported sharply lower profit because of its largely unrealized $7.5 billion investment and derivative losses.
Overall, Berkshire's 2008 profit of $4.99 billion, or $3,224 per Class A share, was down 62 percent from $13.21 billion, or $8,548 per share, in 2007.
Berkshire's fourth-quarter numbers were even worse. Buffett's company reported net income of $117 million, or $76 per share, down 96 percent from $2.95 billion, or $1,904 per share, a year earlier.
Berkshire owns a diverse mix of more than 60 companies, including insurance, furniture, carpet, jewelry, restaurants and utility businesses. And it has major investments in such companies as Wells Fargo & Co. and Coca-Cola Co.