Credit Writedowns

Editor’s Note: The following is the text of recent remarks on the European sovereign debt crisis made by legendary investor George Soros at the Festival of Economics in Trento, Italy.

Gold is poised to complete its 11th consecutive annual gain, the longest winning streak in at least nine decades, on the brink of a bear market. George Soros, the billionaire who two years ago called it the “ultimate asset bubble,” cut 99 percent of his holdings in the first quarter, Securities and Exchange Commission data show. Betty Liu reports on Bloomberg Television’s “In the Loop.” (Source: Bloomberg Television)

Paul Davidson argues that a theory is the way humans describe real world observations on the basis of a model that starts with a few axioms. An axiom is an assumption accepted as a universal truth that does not need to be proved. From this axiomatic foundation, the theorist uses the laws of logic to deduce conclusions that explains what we observe in the world of experience. All theories are generally accepted in some tentative fashion. Theories are not ever conclusively established and can be replaced when events are observed that are deviations from the current existing theory. Thus, the financial crisis of 2007-2009 should have been sufficient empirical evidence to indicate that the axiomatic basis of the mainstream theory needs to be replaced.

This is an interesting way of looking at it. I have been under the same impression a lot of people are, that the system is teetering on the edge and policy makers are being pushed by markets to save/reform it. But what if what Soros here says is true? What then?

This week’s Outside the Box is in the tradition of showing the other side of the argument. Normally, anything George Soros says or does politically has my blood pressure up about 20 points. Yet, I posted another piece of his today in Over My Shoulder – and then ran across this longer piece from Der Spiegel. Note this is from a dedicated Europhile wanting to save the euro. He succinctly outlines what must be done if it is to be saved, and does it as well as anyone. (I know that among my readers there are both likers and haters of Soros, but as an observer of markets he is to be respected. And this is an article in which his acumen is in evidence.

Apparently, there was a reason that Soros was 75% in cash. He is getting out of the hedge fund business altogether, liquidating assets and returning the funds to investors.

George Soros makes the case for economics as a social science using his theory of reflexivity. Here are some additional thoughts to help understand why markets fail.

As I have been saying for over a year now, arguments that fiscal stimulus is needed are not going to work. George Soros makes these arguments in the video below. Not only are these arguments not going to succeed, they are counterproductive. What I think people like George Soros pushing stimulus miss is the degree to which fiscal stimulus and [...]

George Soros has finally come out and said what he meant by his comments about gold being the "ultimate bubble." The National Post reports the following exchange from a Reuters interview. “Gold is the only actual bull market currently. It just made a new high yesterday. In the present circumstances that may continue,” Mr. Soros said in an interview at [...]

Hugh Hendry opines on strategy, George Soros and the euro. He believes the euro "is finished" for many of the same reasons I worry about the euro zone – namely that it acts like a deflationary gold standard for euro zone members. Here’s the problem in Europe.  The euro has acted as an internal gold standard to euro zone members [...]

German daily Die Zeit published comments from an interview with famed US hedge fund investor George Soros who was sharply critical of German economic policy.  Soros claimed that Germany was "isolated" in its austere interpretation of the Maastricht Treaty and that this would lead to economic collapse. Below are a few of the comments Soros made: "Die deutsche Politik ist [...]

These videos are from the Inaugural Institute of New Economic Thinking (INET) conference in Cambridge. Hat Tip Mark Thoma.