Warren Buffett, chairman & CEO, Berkshire Hathaway, tells Bloomberg's Charlie Rose that cash is always a bad investment as it is sure to get down in value over time. He also says the dollar will become worth less in 10-30 years. 

Buffett also talked about his recent investment in Burlington Northern Santa Fe railroad, saying reasonable returns are good enough. Edited excerpts:

From the middle of 2008 to the middle of 2009, it has been certainly one incredible year. Tell me about it...

Buffett: Well, incredible, once in a lifetime... well, it was really an extraordinary time and we came closer to a financial meltdown. I have never seen it in certain respects. Even if there was more panic in the Great Depression (of the 1930s), this came out so fast and so unexpected. fortunately, we had a government to respond... I felt that in the end, they came together… we had the right people in Washington. And if we had a group behaving like deer in the headlights, they could have been run over...

Ron Paul, Ben Bernanke and Timothy Geithner were the right people at the right time. You don't know what might have happened if they were not in power.

Buffett: I can think about them, but I cannot name them. I could think where the ending would have been.

You made some investments during that period like GE and Goldman Sachs. But you just pulled out one big elephant (Burlington Northern Santa Fe railroad). Why did you do it?

Buffett: Well, I felt that as an opportunity to buy a business that is going to be around for 100-200 years. It is inter-woven with the America economy. In a way, the American economy prospers when business prospers. It is the most efficient way of moving goods into the country. It's the most environment-friendly way of moving goods and those things are gonna be very important. But the important thing is... well, I mean, we can't move railroads to China! the train replaces 280 trucks on the roads and emits far less to the atmosphere than trucks and moves 40% of the goods.

And you have an interest in a new port like Houston and Panama....

Buffet: Well, we gonna have more people in this country, and we are going to use more goods over time. I'm sure there is a bad year from time to time. And in the next 100 years, may be 15 bad years. But I don't know whether it will appear. But I also know that railroads will be essential for the country.

When you called up Charlie (Charlie Munger is Warren Buffett's long-time business partner and the vice chairman of Berkshire Hathaway), and said I'm thinking about this, did he say right on Warren or did he say what about this?

Buffet: Charlie gave a kind of low-level grumble, and that is really an endorsement from Charlie!

But he also pointed out that this is a regulated industry and this is also capital-intensive...

Buffett: You and I, we spend money in this business every day. We are spending a lot of money. We repair tracks or rolling stocks, whatever may be and that's capital-intensive and it is regulated. We will continue to be regulated and we will continue to be capital-intensive. I think services provided by railroads are important in many ways. It's the right way to move goods around the country... it is far more attractive in terms of global warming and using trucks... so, it will be here and if you get reasonable returns on that capital investment, we will do okay.

Reasonably good returns. Is that enough?

Buffett: Well, reasonably good returns. I mean, well, you know, for 50 years, I was looking for spectacular returns but I can't get them. We invest $8-10 billion every year and we are in the utility business. It's the same thing there. When we build electric generation and something of the sort, we shouldn't expect spectacular returns. We are building things which are essential to the society and people need our services. We don't have any choice in the case of electric utility, for example. For some time, in the case of rails, we should get decent returns and it should be encouraging enough to keep investing money into the business. But we do not entirely want spectacular returns.

When you look at the future, there is also the argument, this is something that goes off with your philosophy today to get out of cash and get into assets because we don’t know what’s gonna happen to the dollar...

Buffett: Well, cash is always a bad investment. When people said cash is king year ago, I found that crazy. I mean cash won't produce anything, and it is sure to get down on value over time. I mean you always want to be sure you have enough. And any time we have surplus cash around, I am not happy. I mean, I would rather much have good business than cash. We found a chance in the last year or thereabouts to deploy, and we came in something with over $40 billion cash. Now, we have got about $20 billion, and we have some earnings. So, we put lots of cash to work, and I like that. I'm much further on good business than cash.

And is it ahead against the dollar?

Buffett: Well, you can say all assets are ahead against the dollar. I mean, all you know is that the dollar is going to be worth less 10-30 years from now… almost all currencies are ahead of that... but the question is how much it depreciates in value... cash is not a place to be in….

But why? Is it that the dollar is going to be worthless?

Buffett: If we drop million dollars of cash in every US household today, everybody will feel very good, except the people who have invested those things that were denominated in dollar.

You said that the economic panic is over. Where do we think we are?

Buffett: Well, I can tell where we are today but I can’t tell you what will happen tomorrow. We get some 70 businesses, so the panic is over. Now, the money is flowing because we are in recession. There is not much demand for money and the money was really going to dumb projects a few years ago. But money is available now and the panic is gone and the credit faults and spreads have come down dramatically. That panic spilled over into the real economy, and last fall, it really left a scar on the America public psyche.

You have said for a long time that we are too much of a consuming society and not enough of a saving society. Would they have become a saving society?

Buffett: They will probably become a saving society. Of course, the government demand for borrowing will be such that we might need a lot of borrowing from abroad and from within the country.

Commercial real estate is really in trouble?

Buffett: Yes, it’s in a mess.

One of the things that didn’t come out of this crisis is the demand for products. Somebody else has to shoulder them and create that demand, other than the American economy.

Buffett: The American economy will come back. It won't be tomorrow and it won’t be exactly the same. But in the end, we have not changed... it will be becoming more prosperous and it will be coming up with new ideas.

You have said we may need more medicines and we more stimulus.

Buffett: Well, lots of medicines, you know... the stimulus was not perfect actually. But everything is not perfect. I mean we shouldn’t be criticising.

Do you think we need a new stimulus because the other one was flawed?

Buffett: No, I think, we can reserve the judgement. I think the holiday season will tell us when it comes, and I would say that, from what I have seen so far, I don’t think that it is going to be that big a holiday season. But we will know that in a month and let’s see what happens.

You also said that America will still be the best place to invest your money in…

Buffett: Yes, absolutely everything. If you look back a couple of 100 years back, we have got where we are not because we are smarter or not because we work harder, we got here because we have found ways to unleash more human potential. That helps our market systems, helps equal opportunity and helps all those things that are still the fundamental part of the American system.

Some people are gonna hear you say that Warren Buffett is talking about sharing the wealth wherever he goes?

Buffett: Well, I’m talking about sharing prosperity. I’m prosperous because of the society around me. Stick me down in some poor country and I would walk around and say I look like a cowboy!!! well, what we need is a guy with a strong back and I don’t have a strong back, something like that!

Some people are gonna hear you say that Warren Buffett is talking about sharing the wealth wherever he goes?

Buffett: Well I’m talking about sharing prosperity. I’m prosperous because of the society around me. Stick me down in some poor country and I would walk around and say I look like a cowboy…well, what we need is a guy with a strong back and I don’t have a strong back, something like that.

The Bush administration said that once the economic crisis came they treated it with tact… Is there a different attitude about the relationship between the government and the economy?

Buffett: Yes, I don’t think the Obama administration wants the government to take over the economy but they took on a situation recently. I can give credit to the Bush administration, in that last 4-5 months of 2008, a lot of right things were done… the Obama administration, they are not running General Motors and they don’t want to run GM. But the Obama administration or group is to run the whole American economy and they are doing well. They are doing what is necessary in their view to get this economy right and nobody makes a perfect decision on this. They are doing things, I’m sure they didn’t like to do it. I don’t think they want to run General Motors.

Beyond the Congress, is there an idea to create a new regulatory policy platform and architecture?

Buffett: I’m for 100% independence for the Fed. If you have a central bank that is bowing to the world of Congress either directly or indirectly, it would be disastrous.

Countries like China and India have grown and have enormous potential. They are growing faster than we have. Does that mean the pie is bigger?

Buffett: If we have a choice of being in an island of prosperity in a world of six and a half billion where most are suffering or being in the same country with most are prospering, the latter is a much better choice, particularly in the nuclear world… we will grow slower relative to China, significantly slow, but they are starting from a much lower base.

Russian President Dmitry Medvedev today said in a stern message to the Russians that we cannot just depend upon the export of oil and energy  and we have to begin restructuring and all that, like in America.

Buffett: The reason is so damn obvious. They didn’t count on oil but the beauty of it is that we don’t have the monopoly of the system. Our market system can work from elsewhere  and that is because people want to work on the things that other people want. It is much better than having a central planet .

Are we going to create capacity or are we going to have an unemployment rate that we are not familiar with?

Buffett: No, we are going to create jobs. We have been through all kinds of unemployment cycle. The early 80s were the most tough and it really looked tough. In 1981 -82, we had a bad 10% unemployment  and workers were blaming the economy… People said that Germany and Japan are going to produce everything and asked what will happen to this country. We have created millions and millions of jobs since then. Who would have thought what the Google guys were doing till a few years back.

You have said in this conversation that we have to put in a lot of money in times of crisis and we may have presented ourselves very well with a problem that is as difficult as the crisis…

Buffett: When you use all medicines in all unprecedented doses, there are side effects  and under effects. They are somewhat proportional to the extreme nature of the dose. So, we cannot have the fiscal deficit running as we are having right now without having the consequences like a deficit of $1.4 trillion. 

Even for a guy like me, a trillion dollar gets an attention. We are not saving $1.4 trillon, we are actually having a fiscal deficit and a bigger fiscal deficit in World War II. Though this was relative to the GDP then, it had inflationary consequences afterwards.

You wanted a penalty for the directors who do not do their jobs, but you recognise that there are financial institutions that are too big to fail. It has been  and it will continue to be so. You cannot simply say that we are not going to let anybody fail, no matter  how big  and what the consequences are…

Buffett: No, we cannot have a mom and pop bank in every corner.

If you take the leaders of these institutions, a lot of them have gone and have gone  and have gone with more money than I would have got. What is infuriating the American people is that the they have seen a lot of unemployment  and they have seen many things happen to them  and nobody has gone to jail as far as the leaders are concerned…

Buffett: Well, if tiny nations fail, that does not affect United States, but if big institutions like Freddie Mac or AIG or Citi group fail, we could not stand those downfall. It drives people crazy ...

Without the government, would they have gone down?

Buffett: They talk of moral hazards. There are no moral hazards. If you look at Citi, 90% of the market activity disappeared and if you look at Freddie Mac 90% of the market value declined…  and nobody, the stockholder of Freddie Mac or AIG or anyone, thought the system is going to save them. It didn’t save, it got killed. But the guys at the top did not get killed and they were the ones who made all it sick.

And should they have been killed?

Buffett: It should have been harder.

And how would the government have done that?

Buffett: I would have something from those kind of institutions where none got rich from running an institution like until five years after they left. I would have been very restrictive and I would have been tough on directors if they had not been.

There were moments when you were at the end of the phone call from people who wanted money from you. Sometimes advice, but mostly it was money…

Buffett: It is like standing at  the airport  and the plane comes  and  you have a second to decide, this side or that side.

I know you are not a man to agonise…

Buffett: I would have done many smarer things, but I did not optimise.

They needed money and they would have given a lot for that money?

Buffett: The bottom of the market was six months later.  I just took the money and put it at the market six months later. But I did not know that.

So you said that I am optimistic but I do not know if my optimism if justified?

Buffett: I do not  pick the bottom …when I get the money  and if I see that it makes sense, I do it. I do not think that I can do it better tomorrow or the next day. But most of the things make sense.

And there is something that you have taught me. You don’t get so many things back.

Buffett: Not with big sums.

But if you look at Burlington Northern, that was a big sum and you do not get bargains out of that, it is so cheap …

Buffett: But that is a bargain. It is a good asset for Berkshire for life.

But suppose a greater thing came along that you did not know? Would you say oh, my god?

Buffett: I do not worry about these sort of things.