Omaha, Nebraska - Billionaire Warren Buffett said unemployment will likely climb a lot higher depending upon how effective the US policies are, but he remains optimistic over the long term.
Buffett said the American leaders need to support President Barack Obama's efforts to repair the economy because fear is dominating people's behavior and the economy has basically followed the worst-case scenario he envisioned.
"It's fallen off a cliff," Buffett said Monday during a live appearance on CNBC. "Not only has the economy slowed down a lot, but people have really changed their habits like I haven't seen."
Buffett said the changes are reflected in the results of Berkshire Hathaway's subsidiaries. He said Berkshire's jewellery companies have suffered, but more people have been willing to switch to Geico to save money on car insurance.
He predicted that unemployment will likely climb a lot higher before the recession is done, but he also reiterated his optimistic long-term view: "Everything will be all right. We do have the greatest economic machine that's ever been created."
Fear and confusion have been driving consumer and investor behavior in recent months, Buffett said.
The nation's leaders need to clear up the confusion before anyone will become more confident, and he said all 535 members of Congress should stop the partisan bickering about solutions.
Buffett said he believes patriotic Republicans and Democrats will realise the nation is engaged in an economic war.
"What is required is a commander in chief that's looked at like a commander in chief in a time of war," Buffett said.
Whatever the government does to help the economy will likely benefit some people who made poor financial decisions, but Buffett said Americans should realize that everyone is in the same boat.
"The people that behaved well are no doubt going to find themselves taking care of the people who didn't behave well," Buffett said.
A little over a week ago, Buffett released his annual letter to shareholders describing the worst of his 44 years at the helm of Berkshire. The Omaha, Nebraska-based company reported sharply lower profit because of its largely unrealised $7.5bn investment and derivative losses.