Soros Warns the World!

This is an interesting report from Bloomberg.

Railway porter-turned-billionaire financier George Soros has delivered a stark warning that the financial world is on the wrong track and that we may be hurtling towards an even bigger boom and bust than in the credit crisis.

The man who "broke" the Bank of England (and who is still able to earn $US3.3 billion in a year) said the same strategy of borrowing and spending that had got us out of the Asian crisis could shunt us towards another crisis unless tough lessons are learnt.

Mr Soros, who worked as a porter to pay for his studies at the London School of Economics after emigrating from Hungary, warned that modern economics had got it wrong and that markets are not inherently stable.

“The success in bailing out the system on the previous occasion led to a superbubble, except that in 2008 we used the same methods,” he told a meeting hosted by The Economist in London on Tuesday night.

“Unless we learn the lessons, that markets are inherently unstable and that stability needs to the objective of public policy, we are facing a yet larger bubble.

“We have added to the leverage by replacing private credit with sovereign credit and increasing national debt by a significant amount."

Slow recovery

US Federal Reserve chief Ben Bernanke delivered his own warning on Wednesday, saying the pace of the US recovery would not be quick and that "significant" time would be needed to claw back jobs lost in the recession.

"If the pace of recovery is moderate, as I expect, a significant amount of time will be required to restore the 8½ million jobs that were lost [in the US] during the past two years," he told lawmakers.

The Fed chairman said data suggested demand would be enough to "promote a moderate economic recovery in coming quarters", as the US continues its tough slog out of recession.

He pointed to improved consumer spending - traditionally a strong driver of the US economy - as one factor aiding the recovery.

"Going forward, consumer spending should be aided by a gradual pick-up in jobs and earnings, the recovery in household wealth from recent lows, and some improvement in credit availability."

But he warned that the economy continued to face strong headwinds.

"I am particularly concerned about the fact that, in March, 44 per cent of the unemployed had been without a job for six months or more."

Echoing recent comments that the world's largest economy must act swiftly to curb its soaring budget deficits, Mr Bernanke took his tough message straight to Congress.

He warned lawmakers they faced "difficult choices" in cutting the country's deficit and that action could not be delayed.

"Addressing the country's fiscal problems will require difficult choices, but postponing them will only make them more difficult," he told them.

He warned "the poor fiscal condition of many state and local governments" remained a restraint on the pace of economic recovery.

Debt spiral

In his speech at the City of London's Haberdashers' Hall, Mr Soros also spoke out against the international community's efforts to help debt-laden Greece recover, London's Daily Telegraph reported.

The financier said the International Monetary Fund and the eurozone countries that are stepping in to lend money to Greece had proposed a rescue package that could still send the troubled nation into a debt spiral.

"It is a question of solvency," Mr Soros said.

"If you start charging very high rates as the market does in anticipation of solvency then that pushes you into insolvency."

He said the package, which was finalised on the weekend, should offer concessional interest rates, rather than the 5 per cent on offer from eurozone countries and 2.7 per cent from the IMF.

"While 5 per cent is better than what the market is willing to offer, a rescue package should offer concessional rates," he said.

"If they don't [reach their debt reduction target], they have then to tighten even further, then your tax receipts go down and the economy goes further into tanking and then you go into a debt spiral.

"That is the danger that is still remaining."

Mr Soros also called for the "oligopoly" formed by the four largest banks in the United States to be broken up.

He said he was supportive of the so-called Volcker rule, an American proposal to block banks from taking part in proprietary trading and owning hedge funds or private equity operations, Bloomberg reported.