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George Soros on the Financial Crisis, Debt, and Other Stories

Mr. Soros

George Soros is currently the chairman of the hedge fund group Soros Fund Management, and is well known for his philanthropic support of liberal causes. Soros spoke at length about financial recovery, about what governments did right–and what they did wrong. He was introduced by Professor Joseph Stiglitz, who also quietly interpreted each question asked of him.

This Tuesday shortly before noon, a line stretched from the front door of Low Library nearly to the doors of Dodge Hall as those students lucky enough to be selected waited to see billionaire investor George Soros speak. The two-day conference the speech was a part of was called “Sovereign Wealth Funds and Other Long-Term Investors: A New Form of Capitalism” and brought former Vice President Al Gore to speak earlier in the day. Instead of a speech full of platitudes, Soros’ delivery was more like a lecture about his personal, well-considered views on the current outlook for the global economy.

In taking steps to alleviate the length and severity of the recession brought on by the financial crisis, Soros said, states generally made the correct move in the short run and were largely successful in mitigating the economic effects. In the long run, however, Soros argued that governments should take steps in the opposite direction: to decrease, rather than increase, the level of borrowing in the market, as the initial actions to prop up the financial system had only put global markets on “artificial life support.” However, they must be careful not to choke off economic recovery in doing so.

Soros highlighted the debt burden of nations as a metric for gauging both the involvement of the government in the economy and the risk of a nation defaulting on its financial obligations. The interest carried by national debt, U.S. Treasury Bills for example, shows the “risk premium” given by the market. That is, the higher the rate of interest on a government’s debt, the more likely the market thinks the government will not be able to pay back what it has borrowed. Governments, in turn, can use this interest rate to determine whether or not they have borrowed too much.

Overall, then, Soros said he believes that interest rates are too low: governments should do more to stimulate the economy in terms of fiscal policy, preferably in the form of investments instead of immediate spending. The greatest risk Soros identified to stop this is rising political pressure to lower deficits in both the United States and the European Union. “Budget deficits have been exploited for political and partisan purposes,” he said in his careful, almost aristocratic tone.

Photo via Wikimedia Commons.

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