George Soros: The economy’s doomed

[Astoria]

May 25, 2008



George Soros: The economy’s doomed
George Soros, the financier who predicted the credit crunch, tells John-Paul Flintoff there is even more pain to come



‘It’s like a Greek tragedy,” says George Soros, with a smile playing around his lips. “You can see the trouble coming and you can’t avoid it.”

Welcome to global economic meltdown. Petrol prices are shooting up and you can barely do the weekly shopping without an overdraft extension - if only you could find a bank still willing to lend you the money. However, Soros, the Hungarian-born speculator whose name still causes central banks and governments to tremble, seems to be enjoying what he calls the worst financial crisis since the Great Depression.

After all, it confirms what he’s been saying for years. What’s more, he was smart enough, just as the house of cards began to collapse last year, to make nearly £1.5 billion for his own investment fund. And now, to make sure we know how clever he is, he has rushed out a book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means, published by PublicAffairs, which tells us that mainstream economics is fundamentally flawed - and we’re all doomed.

“I think it’s going to be pretty bad,” he confirms. “You have a housing bubble in the UK. Household debts are higher than in the US. The banking and financial industry is much bigger as a proportion of the economy in this country, and that’s been badly affected. Also, taxation of foreigners has come at the wrong time, so there is a small exodus. You face higher prices for food and energy, and the budget allows little room for fiscal growth.”

Is there any hope? “The decline is likely to be more gradual than in the US, but longer-term.”

He’s still smiling. “I don’t think the government is going to be able to prevent the trouble,” Soros continues. “And I don’t think it matters which party is in charge.” Still, the Bank of England could have handled things better, he feels. “It was doctrinaire and orthodox in its management of the credit crisis. It bought into the idea that markets can correct their own excesses. Marvin - er, Mervyn - King was quite inflexible, and then he suddenly had to make a U-turn over Northern Rock.”

Aged 77, the man who famously “broke the Bank of England” on Black Wednesday - forcing Britain out of the European exchange rate mechanism and dealing a fatal blow to John Major’s government - has watery eyes and wears a hearing aid. Despite a twice-weekly game of tennis and a blossoming relationship with a violinist a few decades younger, he is clearly past his peak. However, he still keeps a sharp eye on the world economy and was quicker than most to suggest that the sub-prime housing bubble might affect the US and British economies.

“The period of the US consumer acting as the motor of the global economy has come to an end,” he says, with finality. Surely, I protest, the US won’t allow the dollar to lose its special status. “There’s not much they can do.”

Which currency will take the dollar’s place? “No other currency is sufficiently attractive. They’re all overpriced. So there’s a general flight from investing in currencies to commodities - and that partly accounts for the explosion in the price of oil and food.”

One reason we’re in difficulties, he seems to be saying, is the sheer range of currencies used for trade. Does that mean we need a new approach? Should we, for example, revisit the proposal made by the economist John Maynard Keynes after the second world war for a special currency for international trade - he called it the bancor - which would not be issued by any single country?

Soros nods. “I would welcome something like the bancor - it could come to that. The existing system is . . . I don’t want to say it’s breaking down, but it’s pretty creaky. Eventually, the system is going to need to be reformed.”

The anomaly, of course, is that the man proposing some new kind of international currency is the same super-speculator who has made billions by betting on national currencies.

In his other career, as a philanthropist, he has given away several billion dollars to a variety of causes through his Open Society Institute. At the moment he is absorbed by the devastation caused by the cyclone in Burma. Unwilling to admit defeat, he’s smuggling aid into the country for clandestine distribution.

There’s a remarkable discrepancy, however, between his work on improving the world and his day job of plundering companies and economies. In 1997, during the Asian financial crisis, Thai nationalists branded Soros “an economic war criminal”. They believed he had profited from the country’s misfortune.

He rejects this, but adds: “Markets are amoral. In a market, you have a lot of actors. An individual does not make a difference.”

You could say the same if you were part of a mob setting fire to a palace. “That is true. But then, if you have any money at all, you are part of the same mob. If you put your money in the bank, the bank will storm the palace on your behalf.”

[Ariadni_Nefeli]

He is doomed!

And all of his beloved minions will follow...