Soros on the Coming Economic Crisis

Jay Moore research at
Wed Jan 3 06:51:50 MST 2001

Tuesday, 2 January, 2001, 07:00 GMT
Soros warns of global slowdown

George Soros, the currency speculator who earned the title of 'the man who
broke the Bank of England', has warned that a new global financial crisis is

Mr Soros, who made £1bn by betting on the devaluation of sterling in 1992,
has warned that the weakening in the US economy will prove more severe than

The fallout of the slowdown, which he says US authorities will be powerless
to stem, will prompt a weakening of the global economy, with developing
countries particularly affected, Mr Soros said.

The comments come a week after Sir Edward George, governor of the Bank of
England, joined experts predicting that the US economy is slowing more
quickly than had been hoped.

But Ian Plenderleith, a member of the Bank's flagship committee of
economists, said on Monday that US economic slowdown was "not the central

Talk of global recession reflects "a very considerable exaggeration of
prospects we are looking at at the moment", said Mr Plenderleith.

Slow reaction
Mr Soros said the US Federal Reserve, which sets interest rates in the US,
had been slow to react to the weakening of the country's economy.

"I think this time the Federal Reserve is more following the market than
leading it," he told the El Mercurio newspaper in Chile, where he took a New
Year holiday.

While the Fed would cut interest rates "aggressively" early this year, its
efforts to continue a 'soft landing' for the US economy, which analysts
feared was overheating until the middle of last year, would go unrewarded,
he added.

"I believe that it [the landing] will be bouncy and hard," Mr Soros said.

"A hard landing means a slowdown and could eventually turn into a recession
or low growth for a couple of quarters."

Capital flows
Mr Soros said he was most worried about the effects of the slowdown on
developing countries, who would suffer as capital inflows dried up.

"It is going to be chronic, not a temporary crisis, and I believe it is
already underway."

But emerging markets would not be hit by a meltdown of the proportion of the
1997-98 Asian crisis.

"The markets are already down, which means you cannot have a crash after a
crash," Mr Soros said.

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