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U.S. Economy Faces `Painful Period' of Debt Unwind, Berkshire's Sokol Says

The U.S. is facing a “painful period” in the next five years as homeowners and governments unwind debt built up during the housing boom, Berkshire Hathaway Inc.’s David Sokol said today.

“All of that just feeds into a slow-growth environment,” Sokol, who heads Berkshire’s energy and luxury-flight divisions, said today in an interview at Bloomberg headquarters in New York. “If we could average 2 percent for the next five years, we’d be pretty happy.”

The economy in the U.S. grew at a slower-than-forecast 2.4 percent annual rate from April through June after expanding at a 3.7 percent pace in the previous three months, Commerce Department figures showed last month. Warren Buffett, Omaha, Nebraska-based Berkshire’s chief executive officer, said in June he expected a “terrible problem” for debts backed by state and local governments in coming years.

“It’s going to be a painful period,” said Sokol, whose energy division owns a real-estate brokerage. “If the U.S. grew a consistent 2 percent from this year forward, Europe half a percent and Asia 6.5 to 7 percent, my guess is that we’ll all feel pretty good.”

Sokol, 53, said companies that fired workers at the peak of the financial crisis have been forced to improve productivity, reducing their need for new staff. The U.S. unemployment rate has remained above 9 percent for more than a year, compared with 5 percent at the end of 2007.

‘A Dramatic Jolt’

The credit crisis in 2008 was “such a dramatic jolt to businesses that it did something very positive,” Sokol said. “It made companies that were pretty efficient get a lot more efficient. It made every business I’m involved with really take a hard look at the business model.”

Sokol cut jobs last year at NetJets Inc., the luxury- flights unit, as Berkshire reduced employment by more than 20,000. Berkshire is adding staff at some industrial operations this year, Sokol said.

Sales at U.S. retailers rose less than forecast in July, indicating a lack of jobs is prompting Americans to hold back on spending. Excluding autos, sales of building materials, furniture, clothing, appliances and general merchandise all declined.

“People have been shocked into the notion that maybe some monthly savings is a good thing,” Sokol said. “We’ll end up with a lot of people that are struggling until their home values come back a little bit.”

‘Whatever Warren Wants’

Sokol joined Berkshire in 2000 when he sold MidAmerican Energy Holdings Co. to Buffett for more than $8 billion. He remained at the helm of the power producer under Berkshire and expanded the business through acquisitions, including the purchase of PacifiCorp in 2006.

Buffett, 79, has turned to Sokol to restore profits at NetJets, lobby Congress for protection against new derivatives rules and guide an investment in Chinese carmaker BYD Co. Sokol is considered by some, including Buffett biographer Andrew Kilpatrick, as the frontrunner to take over as Berkshire CEO when the billionaire’s tenure ends.

Sokol considers his main job at Berkshire to be “whatever Warren wants me to do,” he said in an interview today on Bloomberg Television.

To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Betty Liu in New York at bliu17@bloomberg.net; Hugh Son in New York at hson1@bloomberg.net.

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