Economic Meltdown Politics: George Soros Suggests Carbon Reduction Investments

by: Matt Stoller

Fri Apr 04, 2008 at 13:30


I was on a call this morning with George Soros organized by Steve Clemons of the New American Foundation.  Soros is coming out with a new book called The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means discussing what he calls the deflation of the 'super-bubble'.  In terms of political news, Soros made it clear he will not be spending as much money on the 2008 election.  He believes, as do I, that 2004 was a special decision, and the consequences of 2008 are far less significant.  He doesn't like partisan politics, and now seems focused on financial regulation and energy and climate problems.

The call was organized around Soros's ideas on the current financial crisis, which he thinks is the worst since the 1930s.  There are many elements to what is going on, but the gist of the macro-economic shift is that the dollar is losing its status as the world reserve currency and the 'mortar' of the world economy will no longer be the American consumer.  This crisis is different from previous busts, because the shift in global power constrains the ability of the Federal reserve to lower interest rates.

Soroes believes that the financial market's fall was acute, but is basically over.  The problem now is the fall-out, which is going to cascade throughout the economy.  People are going to feel it in a nasty recession and further drops in the price of housing, as the market overcorrects to the downside.  The crisis was driven in the short-term by a failure of the regulators to exercise the powers they have, to allow a totally unregulated market in financial instruments to develop.  The scariest market, he says, is the Credit Default Swaps market, which equals half the entire US household wealth and five times the national debt, and the biggest player there is JP Morgan.

In the past week, I have had the opportunity to ask both Paul Krugman and George Soros what the worst case scenario will look like.  Krugman suggested a slightly less bad Argentine style collapse, followed by a pretty good resurgence of growth.  In the end, everyone will just move 'one house to the left' as legal wrangling gets fierce.  Soros believes that authorities are pretty qualified and won't let the financial system collapse, so he sees the problem as crushing the dreams of the poor and upwardly mobile African-American Latinos buying their first homes.  He specifically cited Prince George's County, a wealthy African-American county hit harder by the foreclosure crisis than anywhere in the country.  The county incidentally will soon be represented by Donna Edwards.

Soros was clear that this is not a natural cycle, it is an entirely man-made crisis, and it will ripple through the economy and slow down or reverse wealth creation because of a credit crunch.  What we need to do, he believes, is establish a clearing house or exchange where all these trades needs to be registered and settled according to well-established rules, until that is cleared up there's uncertainty as to the value of the various unregulated instruments out there, which is why there is a credit squeeze.  No one wants to lend because no one knows what anything is worth, and no one knows who the counterparties are on many of these transactions.

In terms of further prescriptions, he thinks we need to minimize the downturn by seeking to limit foreclosures in the short-term.  In the longer term, he believes that the American consumer will no longer be acting as the key driver of the global economy (the 'mortar').  The next driver of demand, or the next 'mortar' of the global economy, should be infrastructure investments necessary to reduce and reverse global warming.  There's trillions of legacy infrastructure that needs to be overhauled, and that's the only way we're going to find a new global equilibrium.

I believe this is what is called an 'inflection point'.

Matt Stoller :: Economic Meltdown Politics: George Soros Suggests Carbon Reduction Investments

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You've got to be kdding (4.00 / 1)
He believes, as do I, that 2004 was a special decision, and the consequences of 2008 are far less significant.

Matt what about all that we are hearing about a sea change in the voting demographic, the tanking of the Republican brand, Donna Edwards win, and Obama's massive grassroots support?

How can you and Soros think this won't be as significant as the 04 election? The 04 election was about about dumping Bush. This election is about us trying to really dump the Conservative brand for the first time in decades!

We won the Battle. Now the Real Fight for Change Begins. Join MoveOn.org and fight for progressive change.  


I can see (0.00 / 0)
where Soros is coming from only because he is a financial guy and that is where he naturally gravities. Finance is his DNA the same as Global Warming has become Gore's DNA. Day to day politics just doesn't interest the two of them anymore as for something they can devote their time to.

But I adamantly disagree that 2008 is not a significant election. But rather than look at it as a grassroots thing as Bluethunder does above I look at it in what I feel are more important terms such a healthcare and the economy & jobs and SCOTUS & federal level nominations and trade, etc.

If McCain wins then write all those things off as being handled the right way. How is that not significant?


[ Parent ]
I agree (0.00 / 0)
And I would say all of the above: it represents a potentially deep shift in power, a growth in grassroots energy and your listed issues as well:
I look at it in what I feel are more important terms such a healthcare and the economy & jobs and SCOTUS & federal level nominations and trade, etc.

If 2004 was very important--what issue has not gotten worse in the ensuing time? Are we safer? Is Iraq better? Is global warming less of a concern?

I think 08 is even more important than 04.

We won the Battle. Now the Real Fight for Change Begins. Join MoveOn.org and fight for progressive change.  


[ Parent ]
all of the hopeful signs you point to (0.00 / 0)
are precisely WHY this election is not as significant as 2004.  Whoever is president in 2008 is probably not going to be capable of doing as much damage as george bush has done over the last four years to the institutions and infrastructure of the world.  But I say that with some qualms, because I think it's very important that people who care about the election contineu to think it's important :)

[ Parent ]
Hillary's Economic Stimulus Package (4.00 / 1)
Coincidentally, George Soros prescriptions for the economy coincides with that Hillary Clinton has unveiled many months ago - freezing interest rate so that the public will have time to make a deal with the banks and thus limist foreclosures in the short-term.

New world currency? (0.00 / 0)
Will the Euro assume the position formerly held by the dollar, or are we headed into a new paradigm?

Would love to hear thoughts on that - is it in Soros' book?


It's simple (0.00 / 0)
The currency that holds it value at a more steady rate and one which is backed by a real and stable economy is going to be the currency of choice.

Right now the Euro is looking better and better to fulfill those parameters but don't discount the Yen in the future. The dollar still has time to resurrect and the next 4 years or so will be crucial.


[ Parent ]
Size (4.00 / 1)
The ugly truth is that the US no longer has the world's largest economy, it is the EU. In addition within a decade or two China and India will also rival the US in terms of economic activity. Their per capita wealth will be less, but this will be compensated for by the huge size of their populations.

So, regardless of how the present crisis gets resolved, the US is on the way to becoming the former "world's only superpower". Planners in the US know this and know that telling this to the public is a sure way to get booted out of office. The American public does not want to hear that the future may be less bright than the past.

As a consequence all the pols and economists discuss schemes for growth. Growth will raise all boats, growth will decrease inequality, growth will enable us to fund social programs, etc. When we look at the actual actions, however, we see that the plans are not to promote growth, but to hold on to power through military means. The plan is to coerce or intimidate other states into providing us with the raw materials and finished goods we desire at favorable terms. The recent adventures in the Middle East show that even overwhelming military power can't ensure this anymore.

The US, with 5% of the world's population, can't continue to consume 40% of the resources. We also can't pretend that there are enough resources so that the rest of the world can rise to a decent standard of living. Estimates are that the world is already exceeding a sustainable consumption level by 30%.

The only real future option is for the US (and other developed countries) to consume less while allowing the poorest nations to rise to a decent standard and while simultaneously cutting overall consumption to a sustainable level.

One cannot expect people like Soros and Krugman, who are trained in the capitalist, market-based economic paradigm to discuss the kinds of changes needed. All they can do is try to offer suggestions on how to optimize the present system, not how to replace it with something else.

There is a rising consciousness that the current models are unsustainable, but there is little discussion on what should replace them. Perhaps we should be grateful that at least the warning alarms are being sounded and, increasingly, heeded, but it's not enough.

Humanity can't grow its way out of shortage.  

Policies not Politics


Change in values (0.00 / 0)
We can consume less but not have a reduction in well-being, if we stop seeing "stuff" as good and more stuff as better.  Some of the best things in life aren't things, and they are, in a sense, free--family, friends, nature, etc.  Less travel, more community and sustainability isn't inherently bad.

There will also be jobs in new technologies, if we can bring about a change in mindset.  The current farm bill, for example, is an atrocity.  Commodity prices are rising and so we need more subsidies?  With the debt we have?  This is where I really part company with Nancy Pelosi.

The real problems are inequality and socialization of risk.

John McCain--He's not who you think he is.


[ Parent ]
That's it? (4.00 / 1)
Soros thinks the authorities have things in hand? He doesn't say anything about moral hazard? Or about the taxpayers getting something in return for propping up Wall Street, such as shares or warrants in JP Morgan?

No (0.00 / 0)
He thinks the authorities have stopped a full scale financial meltdown.  He is frustrated with them for a host of other reasons.

[ Parent ]
this is an excellent moderate idea (0.00 / 0)
The next driver of demand, or the next 'mortar' of the global economy, should be infrastructure investments necessary to reduce and reverse global warming.  There's trillions of legacy infrastructure that needs to be overhauled, and that's the only way we're going to find a new global equilibrium.

You're not going to get much better from anyone who believes in industrialization (as opposed to sustainable development environmentalists...but they have a different issue to address, which is, in practice, how you raise productivity levels enough to mitigate poverty without industrialization).  

The problem with economic "growth" aside from pollution is that it depends on generating reinvestible surplus--particularly for poorer countries like...most of the world.  Having that investment focused in industries and technologies that actually minimize or reduce pollution may or may not be realistic, but it's certainly a hopeful alternative to the completely imperialistic and fruitless arguments that poor countries should somehow be prevented from industrializing beause it will cause too much pollution (and of course what goes unstated is who generated all that pollution in the first place).  I hope it works.


show the old man a little love :-) (0.00 / 0)


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