Friday, January 8, 2016

George Soros Is Not Making Sense

      George Soros spoke at an economic forum in Sri Lanka on Thursday. The legendary investor said that global markets currently face a crisis that could be compared to the one seen in 2008.  This is makes no sense.  What made the 2008 recession so deep and long was that if affected virtually every major financial institution worldwide.  The housing related debt was so deeply embedded in those institutions that confidence it their financial viability was threatened and many actually failed.  Due to the central role of financial institutions in modern economies, the result was a worldwide crisis.
     This does not happen when there is simply a drop in equity prices.  Prices fall, we all get poorer, economic activity is depressed for a while and then we move on.  If Soros wants a better analogy, it would be 2001 when stock prices dropped dramatically and there was a short recession, but no financial crisis.  Even that though is an exaggeration.  Although stock prices are down, the drop, at least thus far, is not comparable to 2001.  Bottom line - Soros is wrong on this one.

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