WEST PALM BEACH, FL (HEDGECO.NET) – Billionaire and financier George Soros has warned of the dangers facing the global economy. The bubbles are in the US deficits and in the Chinese economy. Hepredicts that the US dollar would continue to drop, and that the Chinese economy �is in sort of an incipient asset bubble�. Soros made such remarks speaking at Bloomberg television news interview.
The asset bubble in the Chinese economy according to Soros creates a situation where it is increasingly getting difficult for investors seeking investment vehicles in China to find suitable ones. Such problem becomes even more meaningful when one considers the fact that China is the only source of growth in the Asian continent, Soros explained. According to him, the economies of Asian countries are increasingly dependent on China�s demand for goods and services, Such tendency would mean that problems in the Chinese economy would produce a domino effect on other dependent economies in the Asian region.
On the question of the United States, Soros said, investors are increasingly worried about the current accounts and budget deficits in the number one economy. The inability of the United States to live below its means may eventually produce undesirable consequences. Soros further explained that although the United States authorities like the short term benefits of the falling dollar, such condition sometimes becomes problematic, because according to him, when currencies drop, sometimes things spiral out of control.
Falling currencies sometimes �tend to actually pick up speed; it�s a very dangerous game because it can get out of hand� Soros said. Since the US dollar began its downward journey, it has lost about 16% and 14% to the euro and yen respectively. At the moment the U S authorities have no immediate plans to defend the falling dollar; the Federal Reserve has indicated its intensions of no changes in the prevailing level of interest rate in the immediate term.
Soros said the world economy is being threatened by the dangerous bubbles in the US and Chinese economies, explaining further that demands generated by the US economy supports the economies of the industrialized nations, while demands from Chinese economy is supporting that of the emerging markets. The imbalances in both the economies of the US and that of China may collide. While Soros think the global economy is on a better ground today than in the late nineties, a crash in any of the economies of the US or China would produce serious consequences for the global economy.
Why should people listen when Soros speaks? Well Soros is a billionaire, and has challenged and won battles against the Central Bank of England in his bet that the pound sterling would fall. That win netted Soros over a billion dollars in windfall profit. He has also placed bets on currencies of some Asian economies and won as well. The former Malaysian leader Dr. Mahathier Mohammed once charged that Soros and his hedge fund lieutenants are responsible for his nation�s currency troubles, but an IMF investigation into the matter cleared hedge funds from such charges. Currently Soros is waging a battle against the re-election of President George Bush, and has devoted about $12 million of his personal funds towards the defeat of Bush in the US Fall Presidential elections. While his speeches carry weight because of Soros stature and influence in global economic and financial matters, such predictions may not come through because of the dynamics and complexities of correctly predicting global economic trends, in which many more players and actors at involved.
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Editor@hedgeco.net
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