It’s Deja Vu All Over Again, Says George Soroos (Not Yogi Berra)


The S&P 500 and the Dow Jones indices have just completed their worst first week of a calendar year since records have been kept. They fell 6.0% and 6.2%, respectively, in those first five days.(USA Today)

Under such conditions, panic is understandable. Hunagarian born, George Soros is now a well-known American billionaire, investor, and speculator. He is among those who is worried. “When I look at the financial markets,” Soroos told an economic forum in Sri Lanka on Thursday, “there is a serious challenge which reminds me of the crisis we had in 2008.” (BloomburgBusiness)

The 2008 crisis, of course, was the worst the global economy has suffered since the Great Depression of the 1930s. (It is generally referred to as the Great Recession.) Soroos is one of the 30 wealthiest men in the world. He has made a reputation for speculating in a prescient fashion about macroeconomic developments in the global economy. For example, “He is known as ‘The Man Who Broke the Bank of England’ because of his short sale of US$10 billion worth of pounds, making him a profit of $1 billion during the 1992 Black Wednesday currency crisis.” (Wikipedia)

But Soroos is not infallible. In fact, doomsday prophets are usually wrong.(InStreet) And there are a lot of differences between the current crisis and the Great Recession that started in 2008. That was primarily about, in the beginning anyway, a bubble in the housing market in the United States. Prices of houses in the US had been inflated by easy credit, subprime mortgages, and what turned out to be unreasonable optimism that those prices would go on increasing forever.

The origin of this crisis is China. Its stock market imploded so badly in the first week of 2016 that the Chinese government shut it down, twice. It is true that there are speculative bubbles and debt levels in the Chinese economy reminiscent of those in the housing market in the United States in 2008. “The general consensus, however, is that China can handle a debt crisis; state control of the economy is much greater and the government has trillions of dollars of reserves with which to rescue the banks if it needs to.”(Economist) Furthermore, the Chinese economy is not so central to the global economy as that of the US. And while the economic crisis of 2008 caught most people by surprise, this crisis has been anticipated, and “priced into” the market already. (Nasdaq) One indication of this is that both the S&P 500 and the Dow Jones indices were stagnant throughout 2015.

So, the terrible first week for the stock market in the United States in 2016 may be the start of a crisis like that of 2008, as George Soroos fears. But even billionaires find it difficult to make such economic forecasts.

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