George Soros on the 'Blah' Economy and China's 'Phenomenal' Rise

Soros on the economy, China
Soros on the economy, China

Will the fragile global economy continue its tepid recovery, or will it tip back into recession? In the view of famed investor George Soros, it doesn't make much difference.

Soros was asked about the state of the macroeconomy during a Q&A held at the Nasdaq Market Site Wednesday morning and hosted by Thomson Reuters. "If I had to sum it up in one word, I would say 'blah,'" he replied. "It may slip into a double dip or it may not, but it's going to slow down. There's no question in my mind."

The major factor standing in the way of a more robust rebound right now, Soros believes, is the emerging vogue for "fiscal rectitude" at a time when more stimulus is needed. "I think it is premature," he says of the drive to shrink deficits. "Of course, you can't run up the national debt indefinitely. . . . But it's the right policy at the wrong time."

Soros addressed a number of other topics during a wide-ranging, hour-long interview. Some highlights:

  • He predicts the Federal Reserve will attempt further quantitative easing, "but they're very reluctant to do it, and for good reason, because it may not be as effective as the first time they did it. It's the appropriate thing to do, but I don't think it's going to be very effective."

  • "I don't think people realize how serious the financial and economic situation was when it collapsed because President Obama employed the confidence multiplier and actually it succeeded. It made the recession shallower and shorter than it would've been. . . . But the problem with the confidence multiplier is if reality doesn't meet expectations, then confidence turns to disappointment."

  • Soros continues to believe Obama should have demanded the government get equity in the banks it bailed out. "This was a political decision. The other way would've been more effective. But it backfired. Instead of nationalizing the banks, we effectively nationalized their liabilities."

  • He had lots to say about China. "China is the great winner. It's rising very rapidly because the West is sinking. The shift is phenomenal. I have never seen anything like it." He also said, "Until the crunch, the U.S. consumer was the motor of the world economy. Now it's the Chinese. It's smaller, so the world economy has a smaller motor. So it's not running very fast." Asked whether the U.S. should consider trade sanctions against China for manipulating its currency, Soros said, "These things might be destructive. Threatening them might be appropriate, but once you use it, both sides suffer."