Tags: Soros US Recovery Temporary | Deficit a Serious Threat

Soros: US Recovery Temporary, Deficit a 'Serious' Threat

Thursday, 27 January 2011 11:31 AM

Billionaire investor George Soros said the U.S. economy is experiencing a temporary recovery and that the nation’s deficit poses a “very serious” threat to growth in the future.

“It is temporary,” Soros, 80, said today in a television interview with Bloomberg at the World Economic Forum in Davos, Switzerland. “Once the economy picks up a little momentum, interest rates will go up and choke of the recovery. We are destined for stop, go, which is better than no go at all.”

The U.S. Federal Reserve maintained plans yesterday to buy $600 billion of treasuries, taking the position that the recovering economy still needs stimulus to reduce unemployment. A “big issue” that hasn’t been dealt with is the U.S.’s $1.2 trillion deficit, which may be the “most serious risk” facing the nation’s financial stability in coming years, Soros said.

Soros, who reportedly made $1 billion selling the British pound in 1992 and says he is now retired from investing, said the euro is “here to stay.” Hedge funds have been slashing bets that the currency will fall after policy makers including German Chancellor Angela Merkel pledged to do everything in their power to support the currency.

The European Union shouldn’t delay a restructuring of sovereign debt and it would be “unjust” if Irish citizens absorbed the cost without losses to bondholders, said Soros, chairman of New York-based Soros Fund Management LLC.

‘You Can’t Wait’

“There is this unresolved problem,” Soros said. “You can’t wait until 2013 to start restructuring the debt. Ireland is putting Europe on notice that they will want to renegotiate the settlement that the current government did.”

Ireland led losses by bonds from Europe’s high-deficit nations today as Standard & Poor’s said it sees Spain, Ireland, Greece and Portugal “stuck in recession.” European Union policy makers are scrambling to contain the sovereign-debt crisis afflicting the region as they struggle to agree on how much of the bill for rescuing such economies should hit taxpayers.

“It’s patently unjust that the Irish people should absorb all the losses made by the banks and that the bondholders should be totally free, and that I think will have to be modified,” Soros said. “Greece in due course, maybe sooner rather than later, will also have to be restructured. Portugal also probably needs it, and that’s about it.”

March Summit

Discussions on a permanent mechanism to address crises have centered on a retooling of the 440 billion-euro ($604 billion) so-called European Financial Stability Facility before a summit of leaders in March. European Central Bank President Jean-Claude Trichet said on Bloomberg Television yesterday that governments could empower the region’s bailout fund to buy bonds.

A restructuring of debts “can be absorbed,” Soros said. “It will cause losses, and if there are any losses then this emergency fund should be able to provide equity to replace missing equity in the banks.”

The Irish government won an initial vote in parliament on a bill yesterday, paving the way to fully implement the 2011 budget, after bowing to pressure from independent lawmakers to impose a tax on bankers’ bonuses.

Soros said that Europe now faces a “divergence which actually was caused by the euro,” which is “a political threat for the cohesion of Europe.”

Still, “the euro is here to stay,” he said. “There’s a commitment for it to be here.”

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Billionaire investor George Soros said the U.S. economy is experiencing a temporary recovery and that the nation s deficit poses a very serious threat to growth in the future. It is temporary, Soros, 80, said today in a television interview with Bloomberg at the World...
Soros US Recovery Temporary,Deficit a Serious Threat
Thursday, 27 January 2011 11:31 AM
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