A Conversation with George Soros
With thanks to Felix Salmon for arranging the invitation.
There’s an episode of House where he has to get rid of one of the people for his new team. By the end of the episode, the sharpest person in the group has said everything that we would have expected to hear from House—and is therefore summarily dismissed, since hearing one’s own opinions being spoken by someone else is less useful than being challenged.
I had a similar feeling with George Soros’s conversation last Wednesday morning with Chrystia Freeland, sponsored by Reuters and held in the NASDAQ building that, er, graces Times Square. So what follows isn’t everything Soros said so much as what he said that either (1) you wouldn’t already know from reading this blog or Paul Krugman or (2) added details or touched on an interesting issue.
UPDATE: Krugman finds another similarity between himself and Mr. Soros.
The Recent Crisis and Its Causes
Soros declares that there was twenty-five to thirty (25-30) years of a “Super Bubble,” which has now burst. It seems from the discussion that Soros believes the SuperBubble was worldwide. Recovery is being hindered by some policies—Germany’s talk about austerity was especially mentioned—by Soros sees strong hope in the Trade Shift that has accompanied the crisis. He noted that the “global economy is a lot better than the US economy,” and that he expects to see it continue growing even if the U.S. (or Europe, due to the German leadership, or even both) fall into a :double-dip.” (In this he is arguably more of an optimist than many.)
China I
Key to this shift has been the growth of bilateral relationships. He noted obliquely that these developed in part because many governments—most especially the Chinese, who have been “the great beneficiary of globalization”—do not want to change their capital controls, but sees them as facilitating the new paradigm. He expects that the next move will be that Hong Kong (with the HKD remaining independent of the RMB) will become as London did in the 1960s and 1970s, the intermediary of choice for the growing market (now China, then Europe).
There is a strong need to increase Chinese domestic demand, which he rightly expects is being partially facilitated by the recent wage increases. While there is a need to shift from the previous US-Chinese symbiotic relationship (essentially, bonds for exports), Mr. Soros is “not sure there will be” further advancement in that relationship without greater domestic Chinese consumption. He declared that the Chinese economy has become “the motor” of the world economy, but also noted that it is a smaller motor, so the world economy is not moving so fast.
Currencies
In that context, he was asked by a gentleman from Fidelity Capital if it is time to move from the USD to a “basket” as the World Reserve Currency. (As regular readers know, this is an issue near and dear to my heart.) Stating the obvious, Soros noted that having “a more neutral currency” (which may not be an exact quote) would be helpful in correcting the imbalances, which are largely due to the dollar being the International Reserve Currency. He agreed that a basket Reserve Currency would improve the market. (I—and I suspect David Beckworth—might agree that it would provide for easier remedies, but I’m not convinced it would provide for a better market, since arbitrage opportunities and issues of asymmetric information would be more likely to skew outcomes.)
China II
Soros is very sympathetic to the Chinese people themselves. He notes that they work hard but that their labor is harnessed to an undervalued currency to the benefit of the State. He described the Chinese mercantile system as being “State Capitalism,” which he calls a “very powerful” model, while also noting that it is not so good as the previous “International Capitalism.” Since he noted that “International Capitalism”; is synonymous with “the Washington Consensus,” this leaves him having damned China with very faint praise. (Though, in fairness, he is even more negative about Russia, which he described to Jim Holt as an example of unsuccessful State Capitalism, whose success or failure is primarily driven by the price of oil. He also sees a real possibility of China developing into an Open Society—another point on which he is rather an optimist.)
Where he is not positive about China is its Real Estate market, which is skewed in part due to the political structure. The Chinese version of mercantilism allows government officials to own three (3) properties, which has been a very good way for those workers to get rich through selling and “trading up.” The primary solution to this bubble, he believes, would be initiating a property tax, which would produce a carrying cost on properties and therefore mitigate the speculative aspects of the bubble. (Soros essentially notes that, as with the United States, labor is overtaxed and capital undertaxed in China. Since China has excess productive labor, the benefits flow to the state. Implicitly, the U.S.’s excess produced the differential model discussed above, which worked well for both parties for some fifteen (15) years.)
But all is not bread and roses in Soros’s view of China. An Indian journalist sitting next to me asked the obvious question: Has being a democratic country “hamstrung” India as compared to China? Soros came back to his key theme of the need for growth in Chinese domestic demand, noting that the Indian economy is more stable precisely because there is now domestic growth—growth that will be facilitated in China only as that State evolves both politically and economically. He noted that the Chinese people, to date, have been willing to accept limits on their individual freedom for its benefit in growth, but he does not see other countries being willing to accept such limits on their own freedom to support China’s growth. If I ever had any doubt that Soros is a more devoted Popperian than I, it was eliminated in that moment.
Other Powers, and Some That Might Be
Soros spoke positively of Turkey (Dani Rodrik may have a counterpoint), negatively of Germany (from a policy perspective; when asked by a reporter from Crain’s what we will look back on and see as stupid, he replied that “fiscal rectitude, from a timing point of view, is wrong.”), and generally positively of the Euro, declaring in response to a question about Ireland and Greece that “If anybody would leave [the Eurozone] it would be Germany.”
His key point about the Euro is one that is often found in the literature of financial crises, including the previous Great Depression: there is a European Central Bank, but there is not a central Treasury. But this appears to be de facto being remedied by the Solvency Crisis, with “back-up funds” being developed and used. Soros noted a key distinction that is often missed in discussions: there was not a crisis of the EUR, but rather a European banking crisis, which was exacerbated by policy disagreements between France and Germany. (Germany won, though his view of whether this victory will be relatively Pyrrhic is left as an exercise.)
Again, he looks to the Chinese as an indicator, who started putting their money—you know, that 4 Trillion RMB stimulus and the revenues that have followed it—into the EUR as soon as it reached around 1.20. The Chinese bought the EUR, the Chinese bought Spanish bonds, the Chinese stabilized the market. The Chinese did something no one else can do for them—bought another currency on the open market.
And this is the key to understanding Soros’s attitude toward Japan. You think this is easy, realism? The Japanese are correct to worry about their currency, Soros notes, because, while the RMB is the strongest currency in the world, you cannot own it because of capital controls that the Chinese government maintains because they do not want to have both rising wages and an appreciating currency in their export-based economy. Accordingly, per Soros, any appreciation of the RMB “has to be done in an orderly manner.” In the meantime, the Japanese did the only thing they could.
U.S. Politics
Mr. Soros was by no means a fan of the Obama Administration. Echoing Glenn Greenwald, he notes that the Obama Administration should have corrected the excesses, the abuse of power, of the Bush Administration. Despite this (and what follows), Soros believes Obama “may well be elected to a second term.”
As a matter of handling the banks through the crisis, Mr. Soros noted that the Administration should have injected Equity into the banks, but notes that he believes the Obama team found this politically unacceptable. The result is that the government effectively nationalized the banks’s liabilities and “allowed” them to “earn their way out of that hole,” through practices such as increasing consumer credit card rates.
(My memory of the events is somewhat different, since part of what the Fed received for its TARP funds were warrants on those banks—warrants that have subsequently been sold and counted as if the revenue against the original loans to make them appear more “profitable” in the eyes of several bloggers and financial journalists [including, for instance, Robert]. But certainly there was no AIG-like structure imposed, no U.S. equivalent of Northern Rock, no matter how much saner than would have been.)
To no one’s great surprise, Mr. Soros does not believe that Mr. Obama is “anti-business.”
The biggest fault he found with the Administration’s approach to the crisis is that they depended on the “confidence multiplier” to make recession shallower and shorter than it otherwise would have been. The problem with a confidence multiplier is, of course, that when the results do not match the expectations, the “multiplier” becomes a disappointment, and therefore a drag on expectations going forward. Mr. Soros described this as what happened.
If this scenario is true, then the decision not to ask initially for a $1.2T stimulus, with a chance to end up with a better mix and higher absolute amount of actual stimulus funding, will go down as the tombstone for the Administration, not “just” a spanner in the possible continuation of the Administration’s economic team (h/t Mark Thoma on Twitter). But, hey, the recession has been over for more than a year, so things are getting better, with the upcoming elections more resembling the signpost of 1982 than 1932. At least in some timestream.
Gold
This one was pulled all over the place, so it should come as no surprise. Gold is, per Mr. Soros, the only active “bull market” right now. He is also not optimistic about the ending of that market. Gold is “the ultimate bubble”—may be going higher, but is certainly not safe and is not going to be forever.
Mr. Soros admits a similar attitude toward oil, but at least there the commodity has intrinsic value. As Vincent Fernando, CFA, notes, owning something other than gold at least gives you the possibility of “productive assets.”
Conclusion
I’ve left out a few things, including the roundelay that resulted when one journalist attempted to discuss Mr. Soros’s firm’s holdings in a company he said he didn’t the firm owns. But in general the feeling one gets when presented by Mr. Soros the person is that he is an optimist, perhaps incurably so. Things are rough, and they will probably continue to be rough for a while, but in the longer term, things are getting better for all.
I’m guessing he won’t be speaking at The March to Keep Fear Alive. But Mr. Colbert—let alone his predecessor at the Washington Monument—would do well to book him as a guest.
I only wish we could watch you on Colbert Jimi
Why?
Because he’ll take you seriously. And it will be entertaining.
How would Colbert attack this type of quote?
“The Soros’ obvious and undeniable objective, after having “broken the Bank of England,” is to teach Barack Obama how to destroy the United States of America as we have known it. He’s off to a very good start with his disciple and philosophic doppelganger.”
http://bigpeace.com/mmoriarty/2010/07/20/the-sorosobama-puppet-show/
Colbert will just point out that anyone who spent $26 million on Kerry shouldn’t be allowed to handle money.
But other than that, I like knowing the Soros view of the state of the world economy and finance.
Soros explained his early support of Obama, telling Judy Woodruff in May 2008, “…Obama has the charisma and the vision to radically reorient America in the world.” When Woodruff queried Soros on whether it might be a concern that Obama lacked experience to lead in this dangerous time we live in, Soros responded, “…this emphasis on experience is way overdone…”
http://bigjournalism.com/kashiver/2010/01/27/awaiting-the-soros-obama-sotus-the-state-of-the-re-making-america-revolution/
“The “London Summit ― Leaders’ Statement,” dated April 2, 2009, was only nine pages, and there were some vague and confusing statements in it. But much of it was both understandable and frightening, if reporters would only take the time to bother to read it.
“We have agreed to support a general SDR allocation which will inject $250 billion into the world economy and increase global liquidity, and urgent ratification of the Fourth Amendment,” the document says. Basic research would disclose that this is a reference to Special Drawing Rights, a so-called international “reserve asset” which under the Obama plan would evolve into a kind of new global currency based on the willingness of the U.S. and other countries to dramatically increase funding of the IMF. In the words of the IMF, a Special Drawing Right is “a potential claim on the freely usable currencies of IMF members.” That means that its worth is based in part on claims to U.S. taxpayer dollars. It is a new form of foreign aid.
The reference to ratifying the Fourth Amendment (of the IMF Articles of Agreement) means that Obama has agreed that the U.S. will vote to greatly expand the use of SDRs. But the Congress can have a say in this.
This proposal had been demanded by billionaire leftist George Soros. Indeed, according to a news account in advance of the London meeting, he had come up with the specific $250 billion figure.
As we had documented years ago, Soros has long viewed Special Drawing Rights as a variation of a global tax to finance more foreign aid. Expanding the use of SDRs is another obvious effort to drain wealth away from the United States.”
http://www.aim.org/aim-column/obama-endorses-soros-plan-to-loot-america/
Colbert: Do you mean the first time or the second time George shorted the pound? Soros that is.
The rest of the linked post is so bizzare that I doubt Colbert could make heads of tails of it. But I guess Jimi can.
“The main obstacle to a stable and just world order is the United States.”—George Soros
Ignorance is Bliss….Isn’t It?
Don’t forget the silver mine in Peru. He likes stuff like that.
Soros responded, “…this emphasis on experience is way overdone…”
Colbert: Cheney is always around to help out, if needed.
Jimi,
“It was at a highly secretive meeting” The link is to the description of a secretive meeting? And a shadow conspiracy? Perhaps…but probably no more secretive than the Chamber of Commerce planning, with no fewer luminaries of the masters of the universe at their meetings.
That’s one hell of a lot of power being attributed to a guy that only has a net worth of $14 billion.
Your sources must be scared to death of the Big Three… Carlos Slim, Bill Gates and Warren Buffet. They have $50+ billion a piece. Buffet actually was an advisor to Obama.
But maybe your sources are nutcases? We can never be too sure about things.
Ken,
Krugman should dig up his post when he said England should erect a statue of Soros in Trafalgar Square for breaking pound in 1994, because under the new correctly valued pound, England grew for more than a decade.
That’s much more praise than hedge fund managers usually get. Price discovery always upsets someone.
Too bad the banks did it to England this time and Soros just rode the pound down after the damage was done. Also, Soros is a business small enough to fail, so if he blows it, it’s his butt, not the taxpayers.
Wow. I’ve read lots of Jimi’s bafflegab here, but I’ve never before see him totally decompensate like this before. You could drive a humvee through his posts on this thread and never once hit a single fact.
Troll on stilts!Thanks, AB!
I believe it would be very difficult to prove that Soros influenced President Obama’s decision to temporarily stop exploration in the U.S. waters in the Gulf of Mexico.
If the oil companies could prove that, they would. All hell would break loose.
Yeah, that appeared to be a fair hit on the Obama Administration.
The green industry is headed for a number of problems including cost/benefit analysis and sources of production (primarily Asia and Europe as I understand the situation).
I don’t remember that Jimi’s issue was discussed in a main post at AB. If so, I missed it.
It would be very difficult to prove Soros would have to influence Obama’s decision to temporarily stop exploration in the U.S. waters in the Gulf of Mexico. It’s not likely Obama would set up a Fish Food Commission to make a decision. The standard procedure would be halt, study the scope of the problem, then go from there. Not to mention the politics of it.
All these places Soros funded are basically PACs. They aren’t even masquerading as “legitimate” think tanks. What you see is what you get. Even Independent Perot told us that’s how the world works.
The Republicans missed getting one rich guy on board so he’s the scapegoat for all that’s wrong in politics in the US? Quite funny. How about all the rich guys and corporations that fund both sides so they win no matter what?
Soros is usually too liberal for me on many issues (except when he goes after the banks), and by nature even nice hedge fund managers get involved in questionable stuff, but in reading the so called info linked above, that stuff is psycho.
I remember O’Reilly getting his panties in a bunch over a rich guy getting involved in a US Presidential election. I still laugh when I think about that. Oh, that’s funny.
We know what baggage comes with the dems. The headline did say “…Obama asked George Soros and Wind Energy lobbyists….”
The other shocking news I’ve heard (from Bloomberg and The Washington Toast) is that GE is lobbying for windmills and trying to get subsidies too! Can you imagine? GE lobbying in our Capitol??? I sure hope they just put true stuff in the presentations because I noticed it’s pretty easy to fool congressmen ’bout stuff.
but shit, maybe we will be ok.
That’s funny. This is like just discovering why the IMF exists. They have had the SDR concept for a long time. They (without Soros) started talking about upping the figure to 250B when it looked like the global recession was going to be trouble for eastern and baltic Europe. The US kicks in 100B. First the counter complaint was the IMF is supposed to make loans to really, really poor countries. In 2010 Europe and the IMF pledged it to stabilize the PIIGS, if and when it becomes necessary. Your tax dollars are going to french and german banks to pay off PIIGS bonds, maybe.
Lately the Chinese and other BRICs are talking about replacing the dollar as the world currency with SDRs.
Soros gives his opinion on it all. So there.
Could Mark Twain have been wrong when he said “I don’t belong to an organized political party. I’m a Shadowcrat!”
Hes so short euro….
So you admit he does have some valid insights too.
Cedric,
Wind mills make more sense than aircraft carriers and the war machine to deliver energy. Wind mills make more sense than ignoring the fact that China in a few years will consume more energy than the US with huge foreign currency holdings will drive the cost of oil up. $200 a bbl was just a hint.
So, hit on wind and find issues with tech and cost and lobbying.
So that they can get the $25B aircraft carrier to keep the Saudis shipping oil for the Chinese.
Alternative energy is an emergency for every one. Except those few connected who will skim off the cost of oil.
I guess that’s why Obama decided to keep McCain’s campaign promises first.
jimi,
Hell, if you worried about projects that have overruns and failures, look at the $1.6T in war profiteering that is late to fictional need, overrunning costs by 24% and tech specs are waived deviated upon and shoddy designs built to keep to schedule.
That stuff is written in GAO reports every year and no one in the MSM seems to pick up on the trends.
That $1.6T is just 96 systems and only “acquisition costs”.
The 20 year costs of that sub set of war profiteering is closer to $6T.
Well MG,
Your comments are nothing like what Jimi offers, not one whit. And to prove there is not something is ridiculous until there is proof such a thing might exist as a conspiracy and not simply the machinations of billionaire class individual. So a response to refute the ‘charge’ is patently a non-starter.
Corev,
The Koch brothers were never mention here until the money trail was established, which also goes far beyond the 26 million.
Also MG,
If you had bothered to read the Spainish report on green jobs you might have decided it was not worth trying to hide it. That does not mean Pickett the wind guy also did not try to hide it. I also am glad it was pointed out for reading…which I did.
Lastly, my comment was couched not at Jimi but as to how it was different from the machinations of other moneyed individuals in secretive meetings, which are common it seems, and about pushing money for personal ends.
I suggest the outraged tone about a lack of mine be couched in a different manner to get an informative response from me…if the questions merits the time.
We could also peursue money trails currently being donated to Karl Rove’s organization by individuals….so what. The post was not selling Soros as a leader, but recorded a conversation, which for us amateur bloggers is hard to arrange.
This is a kind of disappointing conversation regarding Soros’ discussion of the economy and markets. As a reader, I’d much rather see some analysis of those issues rather than the transparent ideological point that only say what we already know about Soros. I’d prefer we stick to economics rather than these broad generalizations and name calling.
This is a kind of disappointing conversation regarding Soros’ discussion of the economy and markets. As a reader, I’d much rather see some analysis of those issues rather than the transparent ideological point that only say what we already know about Soros. I’d prefer we stick to economics rather than these broad generalizations and name calling.
This is a kind of disappointing conversation regarding Soros’ discussion of the economy and markets. As a reader, I’d much rather see some analysis of those issues rather than the transparent ideological point that only say what we already know about Soros. I’d prefer we stick to economics rather than these broad generalizations and name calling.
Has nothing to do with the amount of money….it is all about the agenda, and the allies that have something to gain helping you accomplish that agenda.
Can you please quote the Gates, Buffet, nad Slim political agenda?
Joel,
“humvee through his posts on this thread and never once hit a single fact.”
Take a position….provide some facts….prove what is not correct!
If you can’t do it then STFU!
Bum,
Your concerned about the disclose of a man that is actively attepting to negatively effect your way of life?…….That’s Rich!
It’s a different world some of you are living in.
I always invision the situation where your in your front yard watching your house burn down, and the fireman says to you…”I’m sorry but your house burned down and it looks like it was arson,” and then you say, “Do you have a link for that?”
“that stuff is psycho”
Take a position…provide the facts…prove what is incorrect! Most importantly prove that the Demcorats are not beholden to Soros money, which was provided for the media machine that swept/lied them into power, and point out where the Democrat agenda deviated from the Soros agenda. The idea that Democrats didn’t go radical or leftist enough for the Soros agenda is not a adequate response.
If you can’t do that then this statement “Mr. Soros was by no means a fan of the Obama Administration” is incorrect isn’t it?
“How about all the rich guys and corporations that fund both sides so they win no matter what?”
Yeah we know, but they don’t have the same agenda as Soros and Soros’ money. Therefore it is completely different.
Dan – “Also MG, If you had bothered to read the Spainish report on green jobs you might have decided it was not worth trying to hide it. That does not mean Pickett the wind guy also did not try to hide it. I also am glad it was pointed out for reading…which I did.”
You’re making a statement here as if you know the facts. I read the Spanish report some time ago. I’ve been involved in a couple of discussions about it in the private sector.
The Administration and others in the U.S. were foolish to try to bury either of the reports.