CNN (et al) interview the Hungarian-born grandmaster, who is pounding the media pavement flogging his latest book. Soros’s bottom line? We’re screwed.
Question: In your 50 years in finance you’ve seen any number of crises. Why is this so bad?
Answer: Because two bubbles are deflating at once. There’s the collapse of housing prices, of course. On top of that there’s the end of what I call the superboom of credit expansion that has been going on for 25 years. That was made possible by a stable global financial system in which the dollar was the world’s primary currency. Now, for many reasons, the system is in question and nothing has taken its place. That has created great uncertainty.
Q. And for us regular people it means…?
A. The days of rapid financial wealth creation are over. We’re now in a period of wealth destruction. It is going to be very hard to preserve your wealth in these circumstances…
Q. Can’t the Fed just bail us out again?
A. The Fed’s first duty is to prevent the financial system from collapsing. It’s shown it can do that, and the markets are breathing a sigh of relief. But we can’t avoid the fallout in the real economy. We’re facing not only recession but also inflation and a flight from the dollar.
This is a distinction that is often missed: the difference between the credit crisis and the economy. The credit crisis does appear to be easing. The economy, meanwhile, is (arguably) just starting to get worse. The Fed, meanwhile, has its hands tied, which is why Ben Bernanke is now begging and pleading for banks to write down principal of home loans, etc.
Soros thinks the crisis is so bad that he’s come out of retirement to hedge. He doesn’t think money can be made in this environment, but he’s hopeful he can lose less of it.