Best of 2016: George Soros Says Next Financial Crisis Already Started

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Over the holidays, we will be republishing our top posts of 2016 over the next few days. This was our single most-read post of 2016 from way back in January. Many of Soros’ predictions for the year we’re about to leave behind never came to fruition (a “hard landing” in China) while others were spot on (the Federal Reserve left interest rates, mostly, alone this year). Looking back on it now, much of what Soros spoke of has not changed. China is still exporting deflation even though metal prices recovered this year.

You would be a brave investor to bet against George Soros. The billionaire investor has shown a canny knack of making the right calls over the decades. As an article in Bloomberg says he rose to fame as the hedge fund manager who broke the Bank of England in 1992, netting $1 billion with a bet that the UK would be forced to devalue the pound.

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He also successfully bet that Germany’s deutsche mark would rise after the collapse of the Berlin Wall in 1989 and that Japanese stocks would start to fall in the same year. Between 1969 and 2011, Soros led his hedge fund to average annual gains of about 20% before returning money back to investors in 2011.

Expecting a Hard Landing?

In an interview with Bloomberg’s Francine Lacqua from the World Economic Forum in Davos, Switzerland, this week, he is predicting another financial crisis like 2008, but rather than being precipitated by the US sub-prime market, this one will be down to China exporting deflation to the rest of the world.

Ironically, Soros believes China has the reserves and centralized control to weather what he sees as an inevitable hard landing. It is the effect that China’s hard landing will have on the rest of the world that worries him.

When asked if he expected a hard landing he responded, “I’m not expecting it, I’m observing it.”

It has already started. Soros says a more accurate measure of China’s current economic growth is 3.5%, rather than the latest official figures of 6.8% expansion in the fourth quarter. He added that the country’s unsustainable debt burden and capital flight are both signals of a hard landing.

China had about $843 billion of capital outflows in the 11 months through November, according to a Bloomberg Intelligence estimate. Meanwhile, China’s slowdown is combining with lower oil prices and competitive currency devaluations to increase the risk of deflation around the world, a situation the world has no experience of handling and few tools left to counter.

Don’t Expect Interest Rates to Rise

Soros says the Fed will not raise rates this year, and, indeed, made a mistake in raising them late last year as deflationary pressures were already rising. He predicts a continuing difficult year for stocks, commodities and Asian currencies, and says the market has not yet hit bottom.

Soros is not alone in his predictions, other hedge fund managers at Davos have made similar warnings and a report in the New York Times this week says deflationary pressures are dissuading consumers from spending the gains made by lower gasoline prices on increased spending elsewhere. The paper quotes JPMorgan Chase & Co. which said lower prices will help expand economic activity by just 0.1%, while economists at Goldman Sachs said they expected an impact “around zero.”

In a deflationary environment, lower prices actually encourage consumers to step back from purchases in the belief that consumption tomorrow will be cheaper than today. The last time we had such conditions was in the 1930’s when major economies went backwards and now, as then, we would find it a challenge to overcome.

Comments (9)

  1. Richard says:

    Soros always had a new news.

  2. Byong says:

    The hard landing in the Chinese stock market has already begun. Let’s see what happens in the real economy. I also think the Chinese government overstates their numbers.

    1. Stuart Burns says:

      Hi Byong, many would agree with you regarding the Chinese government numbers, they have always rather faithfully followed the party predictions, a little above on the way up and a little below on the way down but altogether too reliable with rarely a surprise. Some commentators at the recent Davos summit were suggesting real growth was closer to 3.5%. I have no evidence to support that but electricity demand is down and that’s not a good sign for industrial activity.

  3. Rafael says:

    I agree with you, Byong! Chinese government overstates their numbers and we know where it going to be in a few years (or maybe months)..

  4. Barcellos says:

    I fully agree with what Mr. George Soros said in the article, the crisis has already begun and I believe it is far from sad to end.

  5. saiba aqui says:

    Mr. George, I believe that this financial crisis has really started and I am very scared because I believe that it will become a huge snowball, this world crisis is only in the beginning.

  6. Rev Apostle Joseph TOUBI says:

    The collapse of China.

    We are in May 2017 and for several decades, unlikely oracles, philosophers, economists, politicians gathered together with so-called “strategists” in the worldwide neoliberal choir, constantly have been singing the same refrain: China is the new world power and has become the new engine of the world economy.
    Let us examine the inside of the engine that is the object of the praises of the global neoliberal choir.
    No sooner have you looked inside the so-called “engine” of the world economy that four disquieting shortcomings proper to damage all the self-confidence of the Central Committee of the Communist Party are revealed in the light of the day.

    Shortcoming N°1: Severe ontological failure.

    At the source of the birth and the real prosperity of a people or a nation are two important imperatives: the resolution of the question of good and evil on the one hand and then the birth of the individual on the other hand.
    Put into contact with the new foundations laid down by the Apostle Paul, the West categorically rejected the resolution of the question of good and evil, even to extend of qualifying such rejection as a condition of access to “progress” and thereby signed its inescapable death. Nevertheless, the West discovered and embraced the birth of the individual, the heart of Christianity preached by the Apostle Paul; thus temporarily taking a decisive lead over the other peoples who strove to place the community or the party or some institution at the helm of the world, whereas only the individual acts on behalf of GOD as the originator of history and community.

    What do we observe in China?

    Like the West, China has not at all addressed the resolution of the question of good and evil. In addition to this tragic mistake already made by the West, China literally stood up against the birth of the individual and against the position of the individual at the command of history.
    Ontologically, such a civilization has a precise destiny: collapse.

    The only way out for this country is to discover a “new DENG XIAOPING” who will understand that it is necessary to solve the question of good and evil and to put the newborn individual at the helm of history and community.

    Shortcoming N°2: China’s current revelation in Africa.
    Currently (May 2017), the whole world knows that the central committee of the Chinese Communist Party has a serious structural problem that has brooded for several years: overcapacity of industrial production.
    The dismantling of many factories and power plants is on the agenda in China and this dismantling is very expensive for China because it must be funded! You would have expected that in the name of an alleged “friendship” between peoples, the Central Committee of the Communist Party would launch a vast program of industrialization of the “brother peoples” of Africa against extraction of African raw materials. Nothing as such has been envisaged. Today’s China is practicing barter with African countries. It is the extraction of minerals against the construction (by the Chinese engineers of course) of few roads and monuments; all this seasoned with land grabbing. Of course, we are talking about masonic monuments because the tropical Black freemason installed as a slave at the base of the world pyramid of Satan simply does not know how to build masonic monuments and joyfully entrust the works to the Chinese “brothers” of darkness.
    In politics, only acts speak and tell clearly the intentions and profound natures. China-Africa summits are multiplying “plans” that promise to flood the African continent with billions of USD. In fact, the Chinese leaders have grasped the childish nature of our so-called heads of states for whom the history sums up to a few billions of USD promises and a few family photos flaunted in the world’s media.
    No China-Africa summit has published a plan “factories against minerals” listing the plants that China wants to get rid of by relocation in Africa, given its overcapacity, in exchange for minerals extracted from Africa. In the defense of the Chinese leaders, it must be said that when you face barmy African heads of states who have no spirit within themselves, have no capacity to think and structure history, you have but only one choice remaining: benevolent paternalism and soft imperialism in order to flatter the gigantic childish ego of the tropical slave whose horizon of thought is limited to the motorcyclists’ procession, the screaming sirens and the support letters and folk dances of the village tribe.

    Shortcoming N°3: Monetary dwarf.

    Contrary to what is suggested by the huge foreign exchange reserves accumulated in USD, China is a monetary dwarf.
    This country has obviously engaged no valid thinking exercise on the nature of money; which is not surprising because it is an ontological shortcoming. Only a people who have discovered the individual is capable of posing the problem of money’s nature and seeking for real money. China has contented itself with copying from the West and developing the credit-money (or negative money) which comes into the world only through debt.
    Outcome of this? The country is literally strangled by debts and has already mortgaged its future by debt before even completing its erection. Government debt exceeds 200% of GDP, while private debt (nearly 145% of GDP) and part government-owned debt are of such poor quality that the collapse of the Chinese banking system is guaranteed. Even the IMF, which is usually so quick to strike up neo-liberal praises, is cautious and whispers that the level of compromised claims of the Chinese banking system is very well above the already worrying figures that the Central Bank of China dares to publish. Recently, the Central Bank of China even invented a new magic trick that we will gladly call red magic: commercial banks transform their rotten claims into shares in debtor companies and behold the structural adjustment of the whole economy is avoided!

    In fact, China does not master money and has never thought about it. Once more; only a people who have discovered the individual is capable of thinking on money’s nature.
    Since magic is ineffective in economics, China must restore the bad money which has massively financed its economic take-off and this restitution can only be done by the budget of the Chinese State. But you have seen that public debt already exceeds 200% of GDP. In order to finance the Himalayan stock of bad bank credits (bad money), all that remains is the cut in public spending, the increase of taxes, unemployment of entire portions of the population … Yes you have well recognized this old friend named structural adjustment and this is what awaits China. Paradoxically, the Central Committee of the Communist Party even envisages a growth rate “around” 6.5% for 2017, ignoring completely the bad money that must necessary be financed. You are stupefied, but it is so; Bad money must be financed by severe structural adjustment because there is no magic in economics.

    You may think that China’s huge foreign exchange reserves could help. This is where you find out that foreign exchange reserves serve only one purpose: buying out of your country! And this is how China massively buys US Treasury bonds with its foreign exchange reserves. It cannot use its foreign exchange reserves posted in USD at banks in New York to finance its huge inventories of bad bank credits. Did you say monetary dwarf?

    Shortcoming N°4: Ignorance of systems science.

    Since Norbert WIENER, the West has mastered the science of material systems before engulfing then into a mortal error. For having rejected the Judeo Christian foundations laid down by the Apostle Paul, the West has devoted itself to a mortal extrapolation: using the axiomatic of material systems to try building and shaping human systems! Unable to grasp the perfectly quantum foundations of human history that completely defy the logic of natural reasoning, the West who rejected the Judeo Christian foundations of the Apostle Paul runs irresistibly to its collapse. One might have thought that China would examine this tragedy that engulfed the West in order to avoid suffering the same fate. Yet a particularly worrying indicator shows that in fact China has not even perceived the utility of the science of material systems, and is thousands of light years away from suspecting the existence of a science of human systems.

    This is not surprising because to discover the science of material systems (even before suspecting the existence of the science of human systems), China must get rid of another ontological taint: the search for harmony. Let us return to the worrying indicator mentioned above.

    Consider the BRICS (Brazil, Russia, India, China, South Africa).

    Since 2009, the BRICS summits have been taking place and now, the BRICS roughly represent one-third of the world’s GDP. One would have expected that, of course, the BRICS would implement a system to quickly dethrone the supremacy of the US dollar on the world economy. In fact, the design of such a system is not very difficult and its implementation would allow the five currencies of the five BRICS countries to establish themselves as reserve currencies for international trade. Many countries of the world, tired of running after the US dollar, would prioritize their international trade with the BRICS countries and would easily use the five currencies of the five BRICS countries as currencies of international reserves and exchanges. Gradually, the BRICS world monetary platform with its supply of five reserve currencies would supplant the US dollar. Such a well-designed platform with the five central banks of the BRICS as liquidity providers on the central platform would free the entire world economy from the FED, from the major systemic commercial banks headquartered in New York, Frankfurt, London, Geneva and this in less than a decade. Who should take the leadership of BRICS to offer such a BRICS monetary platform to the global economy? China naturally because it is the biggest economic power of the BRICS. But to address this type of revolutionary solution for the world economy, one must discover and master the … science of systems; a prerequisite which is an insurmountable mountain for China which ontologically rather seeks … harmony.
    Even if such a BRICS platform would come to birth, this would be just a temporary solution aiming at freeing the global economy from a single currency tyranny. The real solution would come at the second stage: getting rid of credit-money which is a negative money and stepping into the era of positive money. But is not this too high and complex for a society which is yet to discover the New Born individual?
    There is a deadly need for a “new DENG XIOPING” able to introduce China into the real revolution: that of the New Born individual, the diversity and complexity.

    By postponing its structural adjustment and its ontological revolution, China is preparing its collapse as well as the complete annihilation of the world economy.
    We hope that as a result of this cataclysm, civilizations all over the earth will return to the fundamentals and finally address the resolution of the question of good and evil, the Birth of the New individual who is the father of community, institutions and history, the question of positive money and the nature of labor.

    Shalom to all the peoples of the earth.

    Reverend Apostle Joseph TOUBI
    josetoubi@yahoo.com

  7. M. Oliver says:

    I believe and agree with you Mr. Soros, the financial crisis has already begun and by the way the storm will take time to pass.

  8. I completely agree with Mr. George, surely the next financial crisis has already begun and by the way it will get worse and much more.

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