Earlier today, the online edition of Germany’s Stern magazine posted the transcript of an interview with billionaire investor George Soros. Here are some excerpts from his conversation with Stern’s Katja Gloger:

STERN: Isn’t a crash of such magnitude imminent?
SOROS: We are in the midst of the worst financial crisis in 30 years. We have recently seen how bubbles burst. Take, for example, the high tech bubble or the current mortgage crisis. And we have not yet seen the end of this one. The decline goes further than people expect. I believe, that we have not even seen half of the price deterioration. Over the next year, more than 2 million households will become insolvent because they will not be able to pay back their loans. There is a huge destruction of wealth underway.

STERN: You even talk about a “super bubble”…
SOROS: …Yes. It started to form in 1980, when the ideology of market fundamentalism gained a foothold. According to which, markets should regulate themselves, government interventions should be denied and restrictions should be lifted. Everything was based on self-regulating markets, which by the way was not an American invention. It started with Margaret Thatcher in the UK and was further promoted and pushed here in the US by then President Ronald Reagan. He even talked about the “magic of the market”. He, of all people, who is nowadays glorified almost like a saint. Yet, these highly praised markets have time and again been prone to excessive buying and selling which is almost impossible to control. US interest rates were so low that banks encouraged people to borrow more and more money. That is shocking, irresponsible. However, until now there was reason to hope that the government would intervene when things got really bad.

STERN: Just like a couple of months ago, when the US investment bank Bear Stearns basically collapsed and the Fed pumped billions of dollars into the system to avert further disasters.
SOROS: Yes, this is how you get bailed out, how buy your way out of the crisis. Though at some point, the alleged boom ends in a crisis. And this is exactly what we are currently seeing, the end of a super boom, the failure of a false ideology. We are witnessing the end of the “feel good society”, the end of an era.

STERN: How sick is the US economy really?
SOROS: I think that a recession is unavoidable. For years, the US has virtually absorbed the world economy’s money resources - since the dollar was the world’s reserve currency. We borrowed money from everybody, consumed more than we produced and are highly in debt. Yet nowadays, the dollar becomes less and less important as a reserve currency. Prices are rising. The mortgage and credit crises are like the sword of Damocles hanging above our heads. We have little wiggle room left. And Europe too, is going about the problem the wrong way. Inflation fear led the ECB to raise interest rates. That is not a smart thing to do. Although the recession emanates from the US, the Europeans are about to import the recession.

Next Stop, Europe?
Photo by Christoph Burgdorfer, stock.xchng

Source:

“We are in the midst of the worst financial crisis in 30 years”
Katja Gloger
Stern (Germany), July 3, 2008

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