George Soros who happens to be one of the smartest investors there is, usually knows what he is talking about when it comes to economics
Published: Wednesday, 6 Oct 2010 | 2:42 AM ET Text Size
Billionaire investor George Soros blamed Germany for leading the implementation of austerity measures that will throw the euro zone into a "deflation spiral."
Source: World Economic Forum
George Soros warned about deflation in Europe
Additional fiscal stimulus — and not fiscal discipline — is the way out of the crisis for both Europe and the United States, Soros said in a speech at Columbia University on Tuesday.
"Deficit reduction by a creditor country such as Germany is in direct contradiction of the lessons learnt from the Great Depression of the 1930s. It is liable to push Europe into a period of prolonged stagnation or worse," Soros said.
Germany is unlikely to change its ways, however, because its economy is doing well and because the difficulties of other countries can be blamed on structural rigidities, Soros said.
German Chancellor Angela Merkel also gained the upper hand in a recent G20 meeting where she joined forces with Canada and newly elected Conservative British Prime Minister David Cameron to put pressure on other countries to adopt austerity measures, Soros noted.
As a result, President Barack Obama yielded to the majority and agreed to cut the U.S. budget deficit by half by 2013.
"This may be the right policy but it comes at the wrong time," Soros said.
Soros doesn't think Obama should extend the tax cuts pushed by his predecessor George W.Bush.
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Instead, he says, the government should direct the extra money coming from higher taxes into fiscal measures to stimulate investment, not consumption.