George Soros, the man who famously “broke the Bank of England” in 1992, has given an interesting interview to a British newspaper.
“This is a period of wealth destruction. The people who make money will be few and far between. There will be a lot more money lost than made.
“I think this is probably more serious than anything in our lifetime. I think the dislocations will be greater because you also have the implications of the house price decline, which you didn’t have in the 1970s, so you had stagflation and transfer of purchasing power to the oil producing countries, but here you also have the housing crisis in addition to that.”
In other words he believes that the United States and Britain are facing a recession of a scale greater than both the early-1990s and the 1970s.
In the UK will be hard hit, he says. “House prices have risen over the years and are further away from sustainable than in practically any other country, in terms of household indebtedness and the relationship of house prices to incomes.
“This is going to be compounded by the fact that the financial industry weighs more heavily on the economy than in other countries, because London is the centre of the global financial system, and you have the unfortunate condition that the Bank of England is bound into inflation targeting, and is not in a position to lower interest rates until you have an economic slowdown.”
However, “It’s much better than the straitjacket sterling was in when I broke the Bank of England. The ERM would have been abandoned even if I had never been born.
“As a hedge fund manager, I do not claim to be serving the public interest. I am in the business to make money,” he says. “It’s a difficult point for people to understand and there’s a general attitude when they see people profiting to say that markets are immoral, or making money by speculating is immoral.
“It’s really the job of the authorities to set the rules, and there are times when some people break the rules or engage in improper activities, like the sub-prime mortgages. The impact fell particularly heavily on black and Hispanic minorities.
“It is a scandal, and I think you can blame Greenspan for not regulating the mortgage industry. But that’s very different from speculating in government bonds or financial instruments, and that’s a difficult point to get across, but I feel very strongly. Markets play a very useful role and they are amoral, not immoral.”