Buffett frets over U.S. debt, trade imbalance

By Jonathan Stempel

NEW YORK, March 1 (Reuters) - Warren Buffett said on Thursday the U.S. economy may not enjoy a "soft landing" because Americans are taking on too much debt as the U.S. trade deficit worsens.

In his annual letter to shareholders of Berkshire Hathaway Inc. (BRKa.N: Quote, Profile, Research, Stock Buzz)(BRKb.N: Quote, Profile, Research, Stock Buzz), Buffett said he has nearly eliminated Berkshire's more than four-year-old stake in foreign currency contracts, a bet the U.S. dollar would fall, as the holding company buys more foreign stocks and companies directly.

He nevertheless said it is unwise to remain over-reliant on debt. Last year, the U.S. trade deficit rose 6.5 percent to a record $763.6 billion, while the personal savings rate was negative for a second consecutive year.

"Americans will live better 10 or 20 years from now," Buffett wrote. "But our citizens will also be forced every year to ship a significant portion of their current production abroad merely to service the cost of our huge debtor position.

"At some point in the future U.S. workers and voters will find this annual 'tribute' so onerous that there will be a severe political backlash," he continued. "How that will play out in markets is impossible to predict -- but to expect a 'soft landing' seems like wishful thinking."

Buffett said he had "long wanted" to expand internationally, and was successful in 2006. Berkshire bought a controlling stake in Israel's Iscar Metalworking Cos.

It also invests in French drug company Sanofi-Aventis (SASY.PA: Quote, Profile, Research, Stock Buzz), Korean steelmaker Posco (005490.KS: Quote, Profile, Research, Stock Buzz), Chinese oil company PetroChina Co. (0857.HK: Quote, Profile, Research, Stock Buzz), and U.S. companies with large foreign stakes such as Anheuser-Busch Cos. (BUD.N: Quote, Profile, Research, Stock Buzz), Procter & Gamble Co. (PG.N: Quote, Profile, Research, Stock Buzz) and Wal-Mart Stores Inc. (WMT.N: Quote, Profile, Research, Stock Buzz).

"Foreign countries hold growing amounts of our currency reserves," said Thomas Russo, a principal at Gardner Russo & Gardner in Lancaster, Pennsylvania, whose largest investment is Berkshire. "If they stop reinvesting in the U.S., the terms we will need to attract them back could force U.S. interest rates higher, and that's not a soft landing. Alternatively, rates don't rise but the dollar could drop. That's also not a soft landing."