Warren Buffett believes that the Fed’s massive second round of easing has likely done all the good it’s going to do for the country and should be stopped. Speaking on CNBC, he also said that the housing crisis would be resolved in another year and that the U.S. recovery was operating under its own power, regardless of the Fed and “massive” government overspending.
He predicted unemployment would be in the “low 7” percent range by Election Day 2012.
“I have enormous respect for Ben Bernanke. He knows more about the Fed than I do by a factor of 100-to-1. But, in the end, I don’t think we need more of that now,” Buffett said, speaking directly of the Fed’s controversial easing program, due to expire in June.
The Fed’s actions and the stimulus spending by the government as the crisis unfolded two years were crucial, Buffett said.
Now, however, the government is on track to overspend massively even though the economy is recovering largely on its own power, without the government’s aid.
“I don’t think people necessarily realize, we’ve had monetary policy with its foot to the floor for a couple of years. And we needed that to get out of where we were. How long we needed it for is another question,” Buffett said.
He pointed to the natural strength of the economy as managers seek to increase business irrespective of government actions. The amount of spending in Washington, D.C. now outstrips even what was going on during the huge military buildup of World War II, and is not necessary, Buffett said.
“You can call any bill that spends money in Washington a stimulus bill. Stimulus is spending more money by the government than it is taking in. We are going to do that to the tune of 10 percent GDP this year,” Buffett said. “When you get to 10 percent of GDP, you’ve got massive stimulus.”
The main thing that makes the economy come back is 300 million people trying to figure out how to live better to more than they do today, Buffett said.
“I don’t think we need as much monetary or fiscal stimulus as is going on. The whole world needed to see two years ago, when the world was going to try and deleverage and people panicked over every kind of financial instrument, they need to see the government there big time,” he said. “The government really did its job in the fall of 2008. That was hugely important.”
Bernanke will begin a second day of testimony before Congress today. He speaks to House Financial Services Committee starting at 10 a.m.
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