George Soros is interviewed in Der Spiegel and says all sorts of entertainingly outrageous things, but my favourite line is about whether the U.S. will have a recession.”The indebtedness of the U.S. is not all that high, but if a double-dip recession was in doubt a few weeks ago, it is less in doubt now, because financial markets have a very safe way of predicting the future. They cause it. And the markets have decided that America is going to see a recession, particularly after the recent downgrade of the U.S. by the rating agency Standard & Poor’s,” Soros says.
That’s the shortest version of the concept of reflexivity I’ve ever come across.
In that interview, Soros also pins the European financial crisis squarely on the back of German Chancellor Angela Merkel.
SPIEGEL: Is the current crisis even worse than the one in 2008?
Soros: This crisis is still the continuation of the same crisis. In 2008, the financial system collapsed and it had to be put on artificial life support. The authorities managed to save the system.
But the imbalances that caused the crisis have not been removed.
SPIEGEL: What do you mean?
Soros: The method the authorities rightly chose three years ago was to substitute the credit of the state for the credit in the financial system that collapsed. After the failure of Lehman Brothers, the European financial ministers issued a declaration that no other systemically important financial institutions would be allowed to fail. That was the artificial life support; it was exactly the right decision. But then Chancellor Merkel stated that such support would only be granted by each EU member state individually, and not by the European Union.
SPIEGEL: That undermined the concept of a strong European response to the crisis. Has that been the biggest mistake so far?
Soros: That Merkel statement was the origin of the euro crisis. It shattered the vision that the EU will protect the euro in a joint effort.
Oh, and he also hints that China is propping up the euro because it wants an effective alternative to the U.S. dollar.