Hedge fund billionaire George Soros is pretty bearish.
“We are repeating ,” Soros said during the World Economic Forum in Davos, Switzerland in an interview with Bloomberg TV.
The root cause of the crisis is different this time, however.
In 2008 it was the subprime crisis in America. This time it is China, and the deflationary forces it is transmitting to the rest of the world.
“It’s serious,” he said. “And the Chinese left it too long to address the changeover in the growth model that they have to adopt from — investment and export-led to domestic-led. So a hard landing is practically unavoidable.”
In his mind, China can manage that problem. It has over $3 trillion of foreign exchange reserves, he said. The issue is that China’s problems are being passed on to the rest of the world.
“It’s one of the sources of deflation,” Soros said.
“You’ve got basically three major root causes. One is China, the other is oil and raw material prices, and the third is competitive devaluation,” he added. “You have all three.”
Deflation is a hot topic at Davos. Billionaire hedge fund manager Ray Dalio mentioned it in an interview on Wednesday.
“I think the Chinese situation with the currency is very important. Very important. If there is significant currency weakness for the Yuan that will mean more imported deflation and it will make things more difficult.”
Soros said that it has been 80 years since the world last faced a deflationary environment, and the world doesn’t know how to handle it.
“None of us lived in that environment. Last time we had that was 1930s. While I was around then, I was not engaged in the markets. We just don’t know how to handle it. It’s a different environment. Now we have to face it.”
Soros, 85, has retired from the day-to-day operations of running his now-family office hedge fund, Soros Fund Management. These days he’s more engaged in his foundations and philanthropy.