US 'medicine will have unwelcome after-effects' says Buffett

Warren Buffett, the long-celebrated oracle of stock market investing, predicted yesterday that the US economy will remain in a "shambles throughout 2009" and "probably well beyond".

The warning appears in a much anticipated letter to shareholders in Berkshire Hathaway, the holding company, which in 2008 suffered a decrease in net worth of $11.5bn (£8bn) – the worst performance since Mr Buffett took control in 1965.

While Mr Buffett pointed to "paralysing fear" that gripped the US economy in the fourth quarter last year, he admitted also that he "did some dumb things", most notably taking a gamble on the energy giant ConocoPhillips just before oil prices collapsed.

While appropriate, he notes that the US government's hugely expensive response to the crisis bears many risks. "Economic medicine that was previously meted out by the cupful has been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome after-effects. One likely consequence is an onslaught of inflation."

He allows himself some optimism, however. "Never forget that our country has faced far worse travails. Without fail, however, we've overcome them."

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