Tags: george | soros | world | recovery | leaders | global | imbalances

Soros: World Not ‘Out of the Woods' as Leaders Hurt Recovery

By    |   Tuesday, 14 Jun 2011 11:13 AM

World leaders have failed to address underlying imbalances in the global economy, imperiling a recovery, billionaire investor George Soros said.

“We aren’t out of the woods at all,” he said Tuesday at a conference in Oslo. “The markets did in fact collapse.”

Leaders have kept markets up with “artificial life support” without dealing with the imbalances, he said.

Banks have “not been properly recapitalized” and “underlying imbalances have not been corrected,” he said.

Recovery prospects are being hampered by the fact that the “authorities are not providing a solution,” he said.

He said China has missed its opportunity to stem inflation and may now risk a hard landing.

The world’s second-largest economy is in a “bit of a bubble,” Soros said. There are some signs that China is “losing control,” he said.

China has ordered lenders to set aside more cash as reserves after inflation last month accelerated at the fastest pace in almost three years.

Consumer prices rose an annual 5.5 percent in May, even after the central bank raised interest rates four times since September. Inflation has exceeded the government’s 4 percent target every month this year.

China’s formula for steering its economy is “running out of steam,” Soros said, adding the country is seeing the beginnings of wage-price inflation.

Soros, 80, said that a withdrawal of stimulus in the United States has come too early, and that Europe faces a “two-speed” recovery.

High U.S. unemployment, increasing oil and food prices, rising interest rates in Asia and trade disruption from Japan’s record earthquake threaten to damp the world economy. The MSCI World index of global stocks fell 2.4 percent last month.

Soros is chairman of Soros Fund Management LLC, which has about $28 billion in assets. He is best known for reportedly making $1 billion in 1992 on a successful bet that the United Kingdom would fail to keep the pound in a European exchange-rate system that pre-dated the euro.

Meanwhile, Soros said the chances of positively resolving Europe's serious debt problems are decreasing from day to day as authorities focus on "buying more time," not solving problems.

"You have a very serious problem in Europe, the over-indebtedness of some countries: Greece, Portugal and Ireland," Soros said.

“The authorities are not providing a solution but basically buying time. They have always done that, that is the normal thing for authorities to do. In this case, I'm afraid they are making a mistake," he said.

"There is a resolution, probably under pressure of the crisis, a resolution will be found but the sooner it is done the better."

Other financial and economic experts have also recently warned about a dismal future.

A “perfect storm” of fiscal woe in the U.S., a slowdown in China, European debt restructuring and stagnation in Japan may converge on the global economy, New York University professor Nouriel Roubini told Bloomberg.

There’s a one-in-three chance the factors will combine to stunt growth from 2013, said Roubini, who predicted the global financial crisis. Other possible outcomes are “anemic but OK” global growth or an “optimistic” scenario in which the expansion improves.

“There are already elements of fragility,” he said. “Everybody’s kicking the can down the road of too much public and private debt. The can is becoming heavier and heavier, and bigger on debt, and all these problems may come to a head by 2013 at the latest.”

Elevated U.S. unemployment, a surge in oil and food prices, rising interest rates in Asia and trade disruption from Japan’s record earthquake threaten to sap the world economy. Stocks worldwide have lost more than $3.3 trillion since the beginning of May, and Roubini said financial markets by the middle of next year could start worrying about a convergence of risks in 2013.

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World leaders have failed to address underlying imbalances in the global economy, imperiling a recovery, billionaire investor George Soros said. We aren t out of the woods at all, he said Tuesday at a conference in Oslo. The markets did in fact collapse. Leaders have...
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Tuesday, 14 Jun 2011 11:13 AM
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