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US in Recession

This article may upset some of our Polish/America friends who still believe that the US economy is still going in top gear.

WARREN Buffett, the billionaire investor, today declared that the United States was in a recession as he withdrew an offer to bail out the increasingly troubled bond insurance industry.

Mr Buffett, the world's third-richest man, said that "from a commonsense standpoint right now we're in recession", despite the fact America had yet to report two consecutive quarterly falls in gross domestic product, the technical definition of a downturn.

He conceded that the economic environment was "nothing like '73 or '74", when the US was in recession and inflation reached 12.1 per cent, but he said that investors should not rule out the possibility of a severe downturn.

Evidence that the recession in residential construction has spread across America's entire building industry emerged today after official numbers showed a sharp slowdown in public and corporate projects.

Construction spending overall in January dropped 1.7 per cent, far worse than Wall Street's expectations of a 0.7 per cent decline. However, for the first time in two years, non-residential and public sector building - which includes new hospitals and office blocks - shrank 1.2 per cent.

The grim construction data suggests that the credit crisis which erupted last summer has hit company spending, spilling over from the financial sector across corporate America as a whole.

Manufacturing data published yesterday also showed another sharp slowdown in February with output at its lowest since April 2003.

Wall Street is expecting another half a percentage point interest cut in interest rates this month, which would see the cost of borrowing fall to 2.5 per cent.

Meanwhile, Mr Buffett also confirmed that a deal to reinsure $US800 billion ($853 billion) worth of government-issued bonds, known as municipal bonds, was "not on the table" any longer.

The bonds had been underwritten by MBIA, Ambac and Financial Guaranty Insurance and a deal would have provided a significant boost to the industry. It is feared that insurers will not have sufficient funds to pay billions of dollars worth of claims on toxic investments.

It is understood that Mr Buffett had offered to reinsure the bonds but only at a steep premium which was rejected by the three insurers. However, Mr Buffett had kept his offer on the table until today.

Last week his company, Berkshire Hathaway Investments, revealed an 18 per cent fall in fourth-quarter profit as income from insurance underwriting fell. Full-year profit rose by 20 per cent to $US13.21 billion.

Berkshire Hathaway invests in 76 businesses.

The Times

Re: US in Recession

Buffett is a genius and as usual, he is 100% correct. US has been in recession for about a year now.

Weak dollar is a huge boost for exports though and thus the numbers are still up. But in terms of employment and wage growth, most states have experienced big downturns over the last year.
Insurers are about to get slammed hard…their golden age has passed.

I was in Miami recently and there is a ton of foreign tourists (mostly European) coming in and buying everything in sight, especially more upscale items (clothes + jewelry). This has been happening all over for a while now. They come for a week just to shop and go back.

In South Florida, Germans are notorious for wearing tight speedos at the beach. They look like a bunch of fruitloops…maybe Hans can shed some light on that…

Re: US in Recession

Disappointing that there has been very little response to this topic, I say this because every day news of a major recession looms, in the US/GB/Oz, no body seems to be worried in Poland, in light of the huge spending spree by Poles, I wonder what effect this has in Poland in future.

Re: US in Recession

"They look like a bunch of fruitloops"

the Germans or the contents of the speedos?

Apparently the captain of a ship incurred legal action under race relations law for announcing that the passengers should stop acting so Germanic in hogging the sun loungers.