US economic crisis like Pearl Harbour: Warren Buffett

The American economy has ''fallen off a cliff'', saus legendary billionaire investor Warren Buffett of Berkshire Hathaway. In an exclusive interview to CNBC, the Oracle of Oklaham said economic developments in the United States have been ''very close to the worst case" that he had imagined, although conditions could have been far worse had the Federal Reserve not stepped in last September.

Buffett also blamed the US administration for sending out confused messages and said the 535 members of the Congress should stop sparring over solutions to the economic crisis. ''The message has to be very clear as to what the government would be doing. We have had - it is in the nature of clinical process somewhat - but we have had model messages and the American public does not know,'' Buffett said. ''They feel they don't know what's going on and the reaction is to absolutely pull back.''

Asked to specify a timeframe for the American economy to recover, he said, "The American economy can't turn around on a dime, that doesn't happen. Five years from now, I can guarantee you that the machine will be running fine. But I'd like to get there a lot faster than five years. And we can."

The US, Buffett said, is caught in a negative feedback cycle, Americans are scared, and they are changing their buying habits, which in turn is leading to further losses and layoffs. He said people's changed habits have been good news for companies like Wal-Mart, and bad new for luxury goods, like high-end jewellery.

''However, it (the negative feedback cycle) will end,'' Buffett said. ''I don't want this to be the last line of the movie. I had a line in my annual report (his annual letter to Berkshire shareholders) that America's best days lie ahead and we will talk about why that is. And that is the final answer. But how fast we get there depends enormously on not only the wisdom of government policy, but the degree to which it is communicated properly to people.''

Calling the situation an economic war, Buffett likened to the economic crisis to Pearl Harbour and called upon the Americans to help President Barack Obama in tackling the crisis. ''When you have a Pearl Harbour, you have to know that the nation is going to be united on 8 December (the date of the attack in 1940).

''The army doesn't blame the navy because there were too many ships in Pearl Harbour. The army doesn't say it is your fault, so we are not going to send our troops. Similarly, we have little squabbles otherwise, but we put them aside, everybody wants to work into the Fed's plans.''

Buffett's Berkshire Hathaway Inc posted its worst results ever in 2008. Buffet said that efforts to stimulate recovery may lead to inflation higher than the 1970s. ''We are doing things now that are potentially very inflationary,'' he said.

US stocks fell after Buffett's comments, following the worst weekly slump in the Standard & Poor's 500 Index since November.

Berkshire's shares have lost almost half their value in the past year as the bear market dragged down financial assets and the recession put pressure on profit from the company's more than 70 operating businesses. The Geico insurance unit and Dairy Queen ice cream business have gained ground, while the jewelry units are ''just getting killed,'' he said.

Bailouts of the banking system and ''quasi-banks'' such as American International Group Inc were necessary, even if everyone dislikes what's been done to salvage the New York-based insurer, Buffett said. He favoured insuring all bank deposits, and in response to a question about nationalising lenders, Buffett said he doesn't see any moral hazard in the US seizing an institution when shareholders are already almost wiped out.

Companies used too much leverage and ''played games'' such as creating special investment vehicles to keep producing earnings growth, Buffett said. ''Corporate America has a lot of room to behave better,'' he added.

The nation's richest people don't need a tax cut, he said, although chief executive officers shouldn't be ''demonised'' for using corporate jets that help them be more efficient. Berkshire owns NetJets, which leases private aircraft to corporate customers.

Buffett was ranked the richest man in America by Forbes magazine in October. He transformed Berkshire, based in Omaha, Nebraska, from a failing textile maker into an enterprise with businesses ranging from ice cream and underwear to insurance and utilities.

His company remains committed to its $3-billion equity investment in Dow Chemical Co, which the latter company plans to use in acquiring Rohm & Haas Co, even though the deal isn't as attractive as it originally appeared, Buffett said. Midland, Michigan-based Dow, the largest US chemical maker, agreed in July to pay $78 a share, or $15.3 billion, in cash for Philadelphia-based Rohm & Haas.

''Our commitment, which looked smart at the time, looks dumb now,'' he said. ''Conditions changed for Dow and Rohm & Haas in a huge way.''