A Vicious Circle to Affect Real Economy: Soros
By siliconindia   |   Tuesday, 10 January 2012, 22:31 IST
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A Vicious Circle to Affect Real Economy: Soros
Bangalore: George Soros, Chairman of prominent hedge fund Soros Fund Management, stated, "We are in a more dangerous situation than in 2008." He made this statement referring to the present crisis in the Eurozone. During a conversation with Anurag Behar, Vice-Chancellor at Azim Premji University, and CEO, Azim Premji Foundation, Soros said, "We now face the prospect of a deflationary vicious circle, which is going to affect the real economy, the morning after a 25-year long party of leveraging. Creditor nations such as Germany are calling the shots by dictating the rules of a draconian austerity programme in Europe." Soros compared the global meltdown of 2008 with debt crisis in Europe and pointed out that European Central Bank does not have a treasury counterpart to enable an effective intervention unlike the Federal Reserve System and the U.S. Treasury that worked in accord after the fall of Lehman Brothers. He said, "While the central bank is supposed to deal with the problem of liquidity, a treasury is needed in order to intervene when a problem of solvency arises." He noticed that the political atmosphere in Europe moved against integration despite the fact that Europe needed a unitary state to achieve this. He said, "It is only under the pressures of a crisis that the politically impossible becomes possible."According to Soros, theory of financial markets is based on the principle that 'market is not in equilibrium'. He was among the people who sensed the emergence of supper bubble in 1980s when market fundamentalism turned out to central belief and swelled up like a virus around. Soros feels globalization and the wave of deregulation set the foundation for successive financial bubbles. Soros observed, "The moral hazard, arising from the expectation that the authorities would intervene when things went wrong, made things worse." The support provided to financial market approved by the U.S. Congress by means of infusion of $700 billion, resulted in state credit substituting for private credit that had collapsed. He said, 'The action did not address the underlying causes that led to the crisis.' Soros said, "I am very good at identifying bubbles, maybe more than there actually are," in regard to his techniques for investing. While sharing his views about the developing countries in Asia, Soros said, "India's a fascinating country. A democracy with all its faults and a developing country with an exceedingly important role in the world. The reason I am here is that I have not been here in a long time." During a similar conversation at Indian School of Business in Hyderabad, he said, "The difference between developed and developing countries is closing. But while democracy is in crisis in the developed world it is rising in developing countries like Burma or as seen in the Arab spring. I find solace in the rise to search for freedom and progress in the developing world."

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