Billionaire investor and entrepreneur George Soros backed the United States’ plan to buy equity in banks but forecast a “quite serious recession” on the way. The real economy, he said, is now going to enter into quite serious recession. “But if you do the right things, then you could see how you could come out of that recession.”
In an interview with ABC News, he agreed that the United States would have less power in the world and perhaps American citizens would have less money in the pocket as a result of the crisis.
In the last 25 years, Soros said Americans have basically consumed six to seven per cent a year more than they have produced.
As a result, he said, “Other people, the Chinese, the oil-producing countries have built up a dollar reserve which they are now going to convert in real assets. So they become wealthier and we will have more debt,” he added. The US consumer, would cease to be the motor for world economy.
“So we will need another motor. And I think the problems that confront with regard to energy, global warming, energy dependence will require large investments. Those will replace the consumer as the driving force for the economy in the next few years,” he told the interviewer.
If these problems are not confronted, there would be large unemployment, he said, adding that human resources can be put to good use if the country now confronts these pressing problems.The country would have to pay for excesses of the last 25 years because the current crisis has been generated inside the financial system, he said.
“It is not something that has been inflicted from some outside source, like a rise in the oil prices. This is a crisis that comes from the financial system and the system itself is flawed and needs to be repaired,” he added.
Replying to a question about the measures announced by Washington to tackle the crisis, Soros said a lot of time and altitude has been lost. “But if they announce a coherent plan now and if they act and I think they need to take action of Morgan Stanley right away, then the market will stabilise and they will have time to implement the scheme,” he added.
Asked if the worst of the crisis is over, he told the channel that it is a good chance that Friday low was a ‘good bottom’ if a number of things are done including recapitalising the banks, something about housing market, reforming mortgage system and reducing foreclosures. “You will, of course, have repercussions in the real economy but at least the financial system which has been source of trouble will begin to heal,” Soros added.
Asked if he would advise people to buy the stocks at this time, he replied it is for them to make up their mind.
“But certainly you are now in a period, of lets say, give up. And at times like this there are bargains. But unless the government does the right things, then things could still go wrong.”
