George Soros, the currency investor who almost single-handedly drove the pound out of the European exchange-rate mechanism on Black Wednesday, has given warning that the US is on the brink of a slowdown far more serious than the Federal Reserve is expecting.
Mr Soros said that the US economy is "on the verge of a very serious economic correction” after decades of overspending.
His opinion caused disquiet among investors and central bankers, as Mr Soros made £1 billion betting against the Bank of England in 1992.
His comments came as Alan Greenspan, Ben Bernanke's predecessor as Chairman of the Federal Reserve, said that a housing downturn could drag the US economy towards a recession.
Asked whether a recession was inevitable, Mr Soros replied: “I think we are definitely in for a slowdown that I think will be a bigger slowdown than Bernanke is seeing.”
Mr Bernanke has described the past few months as "a challenging period". Speaking in October, he said: "Conditions in financial markets have shown some improvement since the worst of the storm in mid-August, but a full recovery of market functioning is likely to take time, and we may well see some setbacks."
This is the first time that Mr Soros has spoken out about America's macroeconomic state since credit markets seized to a halt after a surge in foreclosures on subprime mortgages.
He said that China, the biggest US creditor, was the "absolute winner" and said that its economy would soar for years to come.
Jim Rogers, the investor with whom Mr Soros founded his Quantum Fund in the 1970s, recently recommended that investors get out of the dollar and sell shares in investment banks and American housing companies.
Mr Greenspan, whose pronouncements are scrutinised carefully by traders around the world, added his voice yesterday to the chorus of despair.
He told a conference in Tokyo that high inventories of unsold housing in America presented a risk to the US economy.
He said: “We still need to accelerate the rate of inventory liquidation, and that will mean bringing housing starts down and sales up. We have a long way to go.”
Mr Greenspan added: "The critical issue on the whole subprime, and by extension the whole financial system, rests very narrowly on getting rid of probably 200,000 to 300,000 excess units in inventories in the United States.”
Speaking in Boston last Wednesday, he gestured towards the likelihood of further crises, and the improbability of averting them.
"Will we have another crash? Yes. Will we have another credit crisis? Yes. Can we do anything about it? No,” he said.
Mr Greenspan and Mr Soros are joined by another collossus of international business in their gloomy forecasts. A fortnight ago Warren Buffett, the billionaire investor, predicted that the subprime crisis would have a long-lasting impact.
He said: "In the next 6 months, one year, two years the problems in the mortgage market can cause a lot of problems with consumers and hurt buying power in the United States,".
But, unlike Mr Greenspan, he does not envisage the subprime fall-out precipitating a wider slowdown in the American economy.
"Overall the economy will make progress," he said.
Mr Soros's and Mr Greenspan's pessimistic evaluations of the American economy come as Mervyn King, the Governor of the Bank of England, said in a rare broadcast interview that uncertainty over the extent of banks' losses in the subprime crisis would continue for months.
In recent days Charles Prince, the chief executive of Citigroup, and Stan O'Neal, the chief executive of Merrill Lynch, have stepped down, becoming the highest-profile victims of the market turbulence.
No comments:
Post a Comment