(May 4): American business tycoon and philanthropist Warren Buffet says he is optimistic that the ailing US economy can make a comeback from the throes caused by the coronavirus pandemic.
“Nothing can basically stop America,” said Buffet who is chairman and CEO of Berkshire Hathaway, an investment-holding company. “The American miracle, the American magic has always prevailed and it will do so again”.
The magic was previously seen in the superpower's recovery post historic events such as the Second World War in 1939, the Cuban Missile Crisis in 1969, and the September 11 attacks in 2001, he added.
The 89-year-old billionaire made the sanguine prediction as Berkshire Hathaway reported first-quarter losses of US$49.8 billion ($70.6 billion). This comes on the back of sales of major US airline stocks which were clobbered by travel bans and restrictions imposed globally.
“It turns out I was wrong,” Buffet elaborated on his acquisition of 10% stakes in American Airlines, Delta Air Lines, Southwest Airlines and United Airlines. These moves amounted to some US$7 – 8 billion.
Aside from airline companies, other aspects of the world’s largest economy have been hit causing over 30 million Americans to lose their jobs, according to data from the Labour Department. Collectively, the outbreak has jolted economic growth with a 4.8% contraction in the US’ 1Q20 GDP – its biggest downturn since the 2008/9 Global Financial Crisis (GFC).
Federal Reserve officials are now expecting the pandemic to leave deep scars in the US economy, despite the trillions of dollars doled out in relief measures.
In separate comments on May 1, the heads of three Fed regional banks noted that the aggressive efforts adopted to save and jobs and companies mark the beginning of a slew of relief to revive the economy. But they argue that other targeted support measures such as worker re-training, re-tooling social safety nets will be needed once the health crisis abates.
Estimating a contraction of some 30% in the ongoing 2Q20, Thomas Barkin, Fed President from the US state of Richmond said the stepped-up social distancing measures may in effect erode business investment and employees’ productivity.
“We need to be working of the economy’s recovery rate [once the pandemic ends],” he noted in a webcast to the Maryland Chamber of Commerce. “We will return to somewhat normal operations – at a gradual pace. [But,] I worry about the landing spot- how strong the economy will be at the end of this”.
Others such as James Bullard, Fed President from St Louis and Robert Kaplan, Fed President from Dallas shared similar sentiments.
Kaplan is looking at unemployment skyrocketing to catastrophic levels as the country heads into possibly, its worst recession. “We’re going to end the year probably with an unemployment rate as high as 8 – 10%,” he told reporters. This translates to over 10 million additional unemployed persons.
“We’re going to need stimulus going into the rest of the year and into next year so we grow faster, so we work down this unemployment rate”.
Kaplan’s comments follow the Fed’s pledge on Apr 29 to keep interest rates low till the US economy recovers and the unemployment rate heads south to hover at a healthy range of 2%.
See: US Fed keeps rates unchanged and pledges to maintain it till economy improves
Still, that appears a distant goal given the high risk of an economic depression if the country has to continue its shutdown, thereby delaying a gradual re-opening of the economy.
“You can hit the pause button on the US economy, but if you try to keep it on pause for too long, too many other problems will start to accrue and you’ll start to get lots of bankruptcies and lots of business failures,” observed Bullard.
“I think we are taking depression risk here if we are not careful and if we don’t execute this [re-opening] properly over the next couple of months,” he said, suggesting a “far more granular, far more risk-based approach” for a seamless re-opening.
In spite of these challenges, Buffet firmly believes a rebound of the American economy is a given.
“If you had to pick one time to be born and one place to be born, you would not pick 1720, you would not pick 1820, you would not pick 1920. [Instead] you’d pick today and you would pick America,” he reflected.
“Ever since America was organised, people have wanted to come here”
