The $26 billion purchase of Fort Worth, Texas-based Burlington Northern is the biggest of Buffetts career, and what he called an “all-in wager” on the U.S. economy. Burlington stands to benefit from an increase in shipments of goods from the U.S.s Asian trading partners, including China.

“I think I know how the country is going to develop,” Buffett, 79, said in the interview, which was posted in a video on Burlington Northerns intranet and distributed yesterday in a regulatory filing as a transcript.

Buffett divested Berkshires equity stakes in two competing railroads, Omaha-based Union Pacific Corp. and Norfolk Southern Corp. of Norfolk, Virginia, as part of the Burlington Northern transaction, he has said.

China ran up a record $266 billion trade surplus with the U.S. last year. China, the second-largest U.S. trading partner after Canada, may boost exports by 20 percent in the first quarter of 2010 as the global economy recovers, according to Macquarie Securities Ltd. and Royal Bank of Scotland Group Plc.

Berkshire has advanced 2.3 percent this year on the New York Stock Exchange and Burlington Northern is up 30 percent. The companies said the merger may be completed in the first quarter.

Berkshires Debt

Buffett, Berkshires CEO, is taking out $8 billion of debt to finance the purchase and risking Berkshires AAA credit rating, which Standard & Poors has said it may cut. He told the Burlington Northern employees that he wont sell the railroads assets to pay debt and plans to continue investing in the companys infrastructure.

“Itd be crazy if we didnt,” Buffett said. “Were not going to buy a business and starve it.”

Buffett and a staff of about 20 people in Omaha oversee a collection of Berkshire operating companies that employ more than 200,000 and sell goods and services including energy, candy, clothing and luxury flights. Burlington Northern brings Berkshire another 40,000 workers, and Buffett said the takeover wont have an effect on employment.

“Weve got 20 people in Omaha, and there isnt one of them that knows how to run a railroad,” Buffett said. “Youll be running the railroad, and youll run it in an efficient way, and when times are good, youre going to have more people employed than when times are bad.”

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Its a natural fit for the Oracle of Omaha, a city with a special place in railroad history. It was the starting point for the westward push of the transcontinental railroad. Today, Omaha is the headquarters of Union Pacific, and BNSF trains rumble through every day.

In a statement, Buffett, whose investing decisions are carefully scrutinized by the world of finance, voiced confidence in the railroad industry.

“Most important of all, however, its an all-in wager on the economic future of the United States. I love these bets,” he said Tuesday.

Berkshire Hathaway Inc. already owns a 22 percent stake in Burlington Northern and would buy up the rest under the deal, for a total value of $34 billion. It still needs approval from Burlington shareholders and antitrust regulators, both expected early next year.

Burlington Northern is the biggest hauler of corn and coal for electricity, making it an indicator of the countrys economic health. It also carries everyday items such as refrigerators, clothing and TVs from Western ports like Los Angeles and Seattle.

Berkshire will pay $100 a share in cash and stock for the rest of the company, more than a 30 percent premium on the Monday closing price of Burlington Northern shares. Shareholders will have the option of a $100 cash payment per share or common stock in Berkshire.

Burlington Northern Santa Fe Corp. stock shot up $20.93, or 27 percent, to $97 on Tuesday. Stock in other rail companies rose as well. Berkshire owns a 2 percent stake in Union Pacifics stock and a less-than-1 percent stake in Norfolk Southern.

Buffett has said he realized a few years late that railroads were an appealing investment. As diesel prices rise, shipping by rail instead of truck becomes more attractive, and it would be extremely difficult for a competitor to build a new railroad.

“They do it in a cost-effective way and extraordinarily environmentally friendly way,” Buffett told CNBC on Tuesday. “I basically believe this country will prosper and youll have more people moving more goods 10 and 20 and 30 years from now, and the rails should benefit. Its a bet on the country, basically.”

Burlington Northern made about 31 percent of its money last quarter from shipments of consumer products from the West to major hubs like St. Louis, Kansas City and Chicago.

Its next most important segment was coal, followed by industrial products like farm equipment, lumber and chemicals. It also hauls corn, wheat and soybeans, much of it exported to China. Burlington Northern serves more of the nations major grain-producing regions than any other railroad.

Burlington itself, however, is among the least optimistic of the major railroads about the pace of economic recovery. Last week it said third-quarter profit dropped 30 percent from a year earlier; people resisted buying retail goods and industrial production struggled.

Coal shipments to power plants have fallen off sharply because of lower electricity demand. Burlington Northern hauls enough coal to power one out of every 10 homes in the U.S.

Still, the coal hauled by Burlington Northern is mined from places like the Powder River Basin in Wyoming and Montana and is lower in sulfur than the coal in the eastern U.S., making it cleaner and in higher demand these days.

An average Burlington Northern train hauls as much freight as 280 trucks. Rails are also favored by some shippers because they can carry things that cant travel on highways, like hazardous chemicals. Buffetts Berkshire already owns major utilities that rely on coal through its MidAmerican Energy Holdings Co. Analysts say he is looking for an investment that will reap rewards many years into the future, and isnt so concerned about immediate gains.

The billionaire is “buying at the trough - things arent going to get much worse. Hes getting in at a good time,” said Art Hatfield, an analyst with investment firm Morgan Keegan.

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