Billionaire Warren Buffett, whose Berkshire Hathaway Inc. posted its worst results ever in 2008, said the economy "has fallen off a cliff" and that efforts to stimulate recovery may lead to inflation higher than the 1970s.

Americans are fearful, confused and changing their buying habits, which is showing up at Berkshire's operating units, Buffett said during an appearance Monday on CNBC. U.S. stocks fell after Buffett's comments.

"We are doing things now that are potentially very inflationary," Buffett said. He called on Congress to unite behind President Barack Obama, comparing the economic crisis to a military conflict that needs a commander-in-chief. "Patriotic Americans will realize this is a war," he said.

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Berkshire's shares have lost almost half their value in the past year as the bear market dragged down financial assets and the recession put pressure on profit from the company's more than 70 operating businesses. The Geico insurance unit and Dairy Queen ice cream business have gained ground while the jewelry units are "just getting killed," he said.

While the recession will end and future generations will live better than their parents, the economy "can't turn around on a dime," Buffett said, adding that some inflation is appropriate right now.

Bailouts of the banking system and "quasi-banks" such as American International Group Inc. were necessary, even if everyone dislikes what's been done to salvage the New York-based insurer, Buffett said. He favored insuring all bank deposits, and in response to a question about nationalizing lenders, Buffett said he doesn't see any moral hazard in the U.S. seizing an institution when shareholders are already almost wiped out.

Companies used too much leverage and "played games," such as creating special investment vehicles to keep producing earnings growth, Buffett said. "Corporate America has a lot of room to behave better," Buffett said.

The nation's richest people don't need a tax cut, he said, although chief executive officers shouldn't be "demonized" for using corporate jets that help them be more efficient. Berkshire owns NetJets, which leases private aircraft to corporate customers.