Why the current crisis is different than 2008: Speaking at the World Economic Forum in Davos Hedge fund billionaire George Soros sounded cautionary on the World Economy, citing China, Oil Prices and Deflation as the main obstacles to future growth.
26 January 2016
“We are repeating ,” Soros said “The root cause of the crisis is different this time, however. In 2008, it was the subprime crisis in America. This time, it is China and the deflationary forces it is transmitting to the rest of the world.
“It’s serious,” he said. “And the Chinese left it too long to address the changeover in the growth model that they have to adopt from — investment and export-led to domestic-led. So a hard landing is practically unavoidable.”
According to Soros, China can still manage that problem. “It has over $3 trillion of foreign-exchange reserves”, he said. “The issue is that China’s problems are being passed on to the rest of the world.” “It’s one of the sources of deflation,” Soros said.
“You’ve got basically three major root causes. One is China, the other is oil and raw material prices, and the third is competitive devaluation,” he added. “You have all three.”Soros said that it has been 80 years since the world last faced a deflationary environment, and the world doesn’t know how to handle it: “None of us lived in that environment. Last time we had that was [in the] 1930s. While I was around then, I was not engaged in the markets. We just don’t know how to handle it. It’s a different environment. Now we have to face it.”
Soros, 85, has retired from the day-to-day operations of running his now family-office hedge fund, Soros Fund Management. These days, he’s more engaged in his foundations and philanthropy.