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Volunteers with the Praise-N-Thunder Outreach Ministry and other local church organisations hand out food to the homeless and needy at McPherson Square in Washington. (AFP)
Speaking on CNBC television, the 78-year-old billionaire also said the economy was mere hours away from collapse in September, when credit markets seized up, Lehman Brothers Holdings Inc went bankrupt and insurer American International Group Inc got its first bailout. "The world almost did come to a stop," he said.
Buffett also called on banks to "get back to banking" and said an overwhelmingly number would "earn their way out" of the recession, even if stockholders don't go along for the ride.
"A bank that's going to go broke should be allowed to go broke," but customers should not worry about their insured deposits, he said. Buffett said there was a "paralysis of confidence" in banks, which he called "silly" because of safeguards such as deposit insurance.
Buffett spoke nine days after telling shareholders of his Omaha, Nebraska-based insurance and investment company Berkshire Hathaway Inc that the economy was in a "shambles" likely to persist beyond 2009.
On Monday, Buffett said the economy was experiencing "close to the worst-case" scenario, with business activity declining and unemployment rising, and that the economy "can't turn around on a dime."
He said Americans, including himself, did not predict the severity of the decline in the housing prices, which then led to problems with securitizations, complex debt and other instruments whose value depended on home prices continuing to rise, or at least not plummet.
"It was like some kids saying the emperor has no clothes, and then after he says that, he says now that the emperor doesn't have any underwear either," Buffett said.
Maintaining his long-term optimism, Buffett said that "five years from now, I can guarantee you that the machine will be running fine," although he hoped it would not take that long.
"We do have the greatest economic machine that man has ever created," he said.
But he said an economic rebound could trigger higher inflation once demand rebounds. "In economics there is no free lunch," he said. "We are going to attempt to have a lunch that to some extent we're going to pay for later."
Buffett also urged Democrats and Republicans in Washington to work better together, and to communicate bipartisan efforts to fix the economy to voters. "You can't expect people to unite behind you if you're trying to jam a whole bunch of things down their throat," he said.
Buffett also said the ailing Citigroup Inc, which Berkshire does not own, would probably keep shrinking, but that depositors should not be worried.
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