INTERVIEW TRANSCRIPT: George Soros

Bloomberg Televisions Francine Lacqua Interviews George Soros in Front of a Live

Audience in Davos
(Thursday, 21st January 2016)
FRANCINE LACQUA, BLOOMBERG TELEVISION: George Soros, thank you so
much.
Thank you, all of you of being here tonight.
The talk in Davos is a lot about market turmoil, but it's also about the Fourth
Revolution when we talk about China.
Overall, would you describe the mood, Mr. Soros, amongst Davos participants as too
optimistic about the future?
George Soros, Financier: Well, I have -- I haven't really talked to anybody so I can't
-- I really can't say. I'll find out from the reaction of the audience.
LACQUA: We looked, of course, at certain points together over the past years and
one thing that has struck me through the many years that we've talked to you is, of
course, your sense of justice.
Now, when you look at your friendship with Mr. Chambo, you haven't seen eye-toeye in the last couple of years in how to deal with Greece, in, of course, what
Europe's future should be. But this year, we were quite pleased by the fact that Mr.
Chambo was talking about some kind of Marshall Plan, something that you've put
forward for a long time.
George Soros: Well, frankly, I read about it half an hour before coming here and I
was stunned. It happened but I only found out a half an hour ago.
But I am an enthusiastic supporter of this idea because the European Union is an
existential crisis. And it needs to get out of that because of the migration problem. It

is effectively distressing and the European Union is falling apart. And that's a time
when you need to have a major initiative, a Marshall Plan. It's absolutely appropriate.
It's amazing that it comes from Chambo, who has been, you know, one of the
proponents of the Bundesbank orthodoxy.
But I have been in favor of it all along. I was proposed a Marshall Plan for Eastern
Europe, more than 25 years ago, in 1989, in Potsdam, when Potsdam was still in
Eastern Germany. And I there should be a Marshall Plan for Eastern Europe, for -including Russia, and it should be financed by the Europeans for a change.
And, actually, led by the Thatcher's representative, who started laughing and the
"Frankfurter Allgemeine" reported it that my proposal was greeted with amusement.
Now, I think this proposal should not be treated by -- with amusement. This should
be taken very seriously. It's going to have a very difficult time passing, because
there's a lot of dissention now. As part of the disintegration.
But I think it needs public enthusiastic support, because I think most people know
that something has gone terribly wrong and -- and it has to be put right.
LACQUA: But are investors underestimating the risks that the European Union is
facing?Is there a danger of break-up? Last year, we were worried about Greece.
George Soros: Yes.
LACQUA: What should we worry about this year?
George Soros: Well, I think Greece is still a problem. It's the one problem that has
no solution, because it has been so messed up, that there is no -- there's -- you can
only muddle along. But there is no solution. And actually, that problem is now coming
to the boiling point again. You can see it on the face of the press.
But it's not a major problem in the scheme of things. I mean it's a burden, but it's
compared to the other issues, it's not that significant.
LACQUA: We had Mario Draghi today saying he's -- he's ready to act. He's
promised more. How much will that help?

George Soros: Well, I think the markets misunderstood what happened at the
previous meeting. The markets sold off. And that was a mistake because markets
expected action and they thought there is no action coming.
But Draghi basically didn't want to act without having German support or stronger
evidence of deflation. And he didn't want to push it until he had one or both of those
conditions and now he could confirm that he has it and they will act unanimously in
March.
I was going to predict it tonight and I stole my line. If we didn't coordinate right.
LACQUA: Mr. Soros, just two weeks ago, you said that actually we should be much
more careful, because there is a risk of repeating what happened in 2008.
George Soros: Yes. Well, 2008, we are repeating it. It was a time of a financial
crisis and a bear market. And you have the same condition today. But the source of
the disequilibrium is different. In 2008, the root cause was the subprime crisis in
America. But now the root cause is basically China. So it's not comparable.
LACQUA: China because growth is much below what we think or because they're
importing deflation as they devalue the yuan?
George Soros: Well, it's deflation and over-indebtedness of the Chinese economy.
The total social debt is now 300 percent and maybe actually it might be 300 -- up to
350, if you take into account the external debt.
So it's a -- it's serious. And the Chinese left it too long to address the change-over in
the growth model that they have to adopt from, you know, investment and export led
to domestic led.
So a hard landing is practically unavoidable.
LACQUA: So you're looking at a financial crisis that would -- would start in China
when authorities also couldn't deal with it?
George Soros: Well, it's one of the -- basically, the key issue is deflation. Now, you
don't -- it's a condition that we are not used to. None of us have lived in a

deflationary environment. The last time we had that is in the 1930s. And the -- while I
was around, I was not yet engaged in the markets.
So we just don't know how to handle it. It's a different environment. But now, we
have to fix it.
LACQUA: On China, do you expect, actually, a -- a hard landing?
George Soros: Well, it's -- it has happened. We -- I'm merely -- I'm not expecting it,
I'm just observing it. But China can manage it. It's got -- it's got resources. It has a
greater latitude in using policies than most other countries because it has over $3
trillion of reserves and so on.
However, they have a way of inflicting their problem, passing it on to the rest of the
world.
So they can -- they can handle it, even if they don't get the position right. They can
certainly continue for two or three years on the wrong course.
But the effect on the rest of the world -- and that is actually mainly deflation. It's a
source -- it's one of the sources of deflation. You've got basically three major root
causes. One is China. The other one is oil and raw material prices. And the third is
competitive devaluation or beggar thy neighbor policies. And you have all three.
LACQUA: How difficult is it for central banks to fight deflation? We're at zero band,
almost. Is there any ammunition left?
George Soros: Well, it's -- it's difficult because whether you have minus 20 basis
points or minus 30 basis points is not going to stimulate the economy. Quantitative
easing has worked. It has saved the world from the deflation, the great depression.
That's the lesson we have learned from the 1930s. It's Ben Bernanke who learned it.
He knew it. And when he realized that he underestimated the magnitude of the
problem, he used his knowledge and he engaged in a two-pronged, which is when
you lose control of the -- of a car, right, you have to turn the wheel in the direction in
which the skid is taking you. And when you have regained control, then you correct
direction.

So the first step was to flood the money -- the market with money. And it's a longterm maneuver. The Fed was being (INAUDIBLE) was the first one to reach the point
where it wanted to correct the second curve and reached it last year and started
talking about it.
But they didn't act.
And by the time they act -- that they acted, the window of opportunity closed. So they
acted at the wrong time. One year too late, by raising interest rates when the
European economy is already -- not the European, the U.S. economy is already
slowing down.
And that's because of deflation, because -- and that was the -- it really became
apparent in December when you had the benefit of lower oil prices, which is -- which
gave you effectively a tax cut, but the households, instead of spending the extra
money, saved it to -- used it to improve their own finances because they felt they
could buy the same goods cheaper next year.
LACQUA: If you're saying that the Fed hike in December is a mistake, so the Fed, at
that moment, is telling us four rate hikes this year. The market believes two rate
hikes.
Do you think that actually Janet Yellin will have to revert -- reverse and cut rates?
George Soros: Yes, well...
LACQUA: This year?
George Soros: -- it is -- I -- I would be very surprised if you had another increase in
the rates. There were supposed to be four. And effectively, they were aiming at
getting up to 3 percent. That would have been back to normal. It would have given
them more ammunition to then -- to ease when the -- you have downward pressure.
But they can't get there.
LACQUA: But do you think she'll have to cut? And if she does cut, does...

George Soros: Who does?

LACQUA: Janet Yellin. If the Fed has to cut rates, to reverse that rate hike which
you think is a mistake, what does it do to her credibility...
George Soros: No. Well, a mistake has happened and if you have to correct it, it's
the right thing and not to stick to it.
But so it could happen that they cut it. But that won't be much of a stimulus. In other
words, the quantitative easing works, but it has a diminishing return.
LACQUA: But how did quantitative easing actually work if deflation has to do with oil
prices? I mean it's quite difficult in this environment, even if you look at Mario Draghi,
he's been trying to get inflation up and it hasn't quite worked. Do we have to look
through the oil price to -- to look at the pressures of deflation?
George Soros: Yes. Well, you can't look through it, because it's right there. So
Draghi is going to expand the -- because he now has, apparently, that's what he said
today, he has the support of the Bundesbank. And he has the evidence of the
slowdown. So he will do it.
LACQUA: How would you play the markets in this kind of environment? What do
you buy?
George Soros: Yes. Well, I -- I'm no longer, you know, in the markets, so I don't
know the details. I'm -- I've become the -- the Eisi (ph) Berlin's hedgehog, you know,
one big idea. The one big idea is deflation.
And therefore, since I don't know the market, I shorted SNPs, I shorted the raw
material producing countries and Asian countries' currencies against the dollar and I
went long, government -- U.S. government bonds.
LACQUA: This was at the end of last year?
George Soros: This was at...

LACQUA: And do you approved (INAUDIBLE)?

George Soros: Yes.
LACQUA: For this year? When -- when does deflation start being a concern? What
will kick start inflation?
George Soros: Well, no, you -- I think this year is going to be a difficult year and the
balance is at the -- is on the down side. So I think -- I don't -- you may hit a bottom,
you know, I mean it's been declining rather rapidly. And, actually, it hit some kind of a
bottom yesterday, because there was a give-up, there was a beginning of a panic.
And it took -- it turned around. But it wasn't a classic bottom, because it didn't have
the big shift. And it still ended down. Today, there is a follow-through. So you could
have a bounce.
But I don't think this is a good entry point here, because you already have, let's say,
normally you recover one third to two thirds of the -- of the loss. Well, you have
almost recovered one third already.
So it's -- and if you have a real bottom, it's always retested. So this -- this is not a
time to buy, in my opinion, but rather to -- for those who have to sell, sell.
LACQUA: Wait, because we will probably see another correction. Do you worry
about the U.K. leaving the EU?
George Soros: Well, I don't know too much about -- I notice the currency made a
new low. That's probably good for stimulating (INAUDIBLE). I don't know enough
about that. As I said, I'm a hedgehog.
LACQUA: Talking about new lows, we also had the ruble touching a new low.
George Soros: Pardon?
LACQUA: We also had the ruble touching a new low.
George Soros: Yes. You -- yes.

LACQUA: A record low.

George Soros: Yes.
LACQUA: What's your take on Russia?
George Soros: Well...
LACQUA: How much do we understand about what President Putin wants to do
next?
George Soros: Well, I think it's very clear that Russia is in a very, very weak
position. It can, again, it has enough reserves that it can last a couple of years.
There's a big year for it in 2017, when a lot of debt comes due.
So I would say that's -- they have to do something now. And, in fact, they are doing
something, because they're -- their balance -- budget will drop to 6 percent and they
have to cut it to 3 percent. So they want a -- an overall reduction between 5 percent
and 10 percent in their -- in their budget.
And that actually violates the social compact that has made him so popular, which is
basically financial stability and a steadily slowly but steadily rising standard of living.
And that, you know, is violating. And he has to do something about it.
So he, you know, he's acting from a very weak position. And that's why -- that's what
makes him adventurous. That's what -- that's why he takes big risks, because he
knows he needs to do something. And that's why he went into Syria, as well, hoping
that it would improve his conditions.
So actually, you now have a race against time. There's a -- the impeding collapse of
the Russian economy and the actually occurring collapse of the European Union.
And it's a question which -- who collapses more and sooner.

And unfortunately, the EU is winning that race. And that's why I am so thrilled by
(INAUDIBLE) turning around and I'm really an enthusiastic supporter, because that's
what you need to do something when you are in -- you are in danger.
And it it's a U-turn for him, because he's, you know, opposed to adding to the debt.
But when should you use the debt, except when you are in -- you are in danger,
right?
So I am all for it.
LACQUA: What is the solution for -- on the refugee crisis in Europe?
George Soros: Well, it's, basically, you have to set a high enough target for
refugees to be accepted. Let's say a million a year. And you have to make it clear
that you will keep that open until those who qualify are actually accepted.
And then, you can demand that they should stay where they are and wait their turn.
And that way, they won't rush, as they do now, to get here while the door is still
open.
And that will reduce the flow to manageable proportions, where because now, we
have past a tipping point where the influx reduces the ability -- capacity of the
receiving countries to assimilate or to integrate the refugees.
So you have a panic. With -- without a common European asylum policy, there is a
panic. It's like a cinema on fire without exit signs.
And that effects every -- the population, the general population, the refugees and the
authorities that are in charge of maintaining law and order.
So there's a genuine panic.
And then it's everybody out for himself. I can't blame Victor Urban (ph) for trying to
protect Hungary's borders under those conditions. I can blame him for refusing to
participate in a common asylum policy. That is the problem. And he's not the only
one.

You have now got a lot of countries opposed. But this is what you need.
And then, you then have to have a comprehensive policy that reaches beyond the
borders of the European Union and you look after the refugees where they're
currently situated.
And that is about to happen. We are on the -- we are doing it. There's going to be a
summit on February 4th in London, co-chaired by Cameron and (INAUDIBLE)...
LACQUA: (INAUDIBLE).
George Soros: -- Maco (ph). And this will be directed at Jordan, which is a small
country, 6.8 million people, with 25 percent of the population is Syrian refugees.
So there's a tremendous number. And now, the -- there are new refugees coming
from Syria because the Russians are bombing the civilian population in the south of
Syria and pushing them into Jordan.
So unless you did something to make the plan is now to open the common market to
special economic zones, where people can -- multinationals and local and Syrian
entrepreneurs can set up businesses and they have free access to a European
market.
And their -- that will give employment both to the refugees and to the local
population. And that should help to stabilize the situation and make it possible for
them even to accommodate the newly coming refugees.
So that's a step in the right direction. And the same negotiations argon with Turkey.
Turkey has now passed a law which allows 10 percent of companies to be Syrian
refugees. So that will provide employment for them.
And you also have to improve the education of the children. And then they will not
come, so the flow will be brought under control.
LACQUA: (INAUDIBLE).

George Soros: And that...

LACQUA: Mr. Soros, are you -- are you worried so about the political future of
Angela Merkel?
Will she have to backtrack on the promises she's made to refugees because of the
backlash at home?
George Soros: Yes, unfortunately, she uncharacteristically risked her political
capital on this issue. She realized that the migration could tear Europe apart. She
was -- unfortunately, she was right. And she wanted to stop it.
So she risked her political capital and she lost, because the -- her gesture of opening
up Germany was not properly prepared. You see, you should have created this
asylum policy, etc.
But actually, by doing it, she has made it possible to speak about accepting a million
refugees because effectively, Germany is accepting them.
So in a way, by making that imaginative response, she made it now possible to have
an asylum policy.
That's the sine quo non.
LACQUA: Will we find more of a solution in the Middle East in the next 12 months?
And -- and, again, what role does Russia have to play in this?
George Soros: Well, unfor -- as I say, the situation is not good because Putin, since
he's in a race with the European Union, he wants the European Union to collapse
and therefore he's generating -- he's using the refugee crisis as a -- a way of
disintegrating Europe.
So the bombing is going on. So there is a -- there is a negotiations. But the bombing
is still. And the Americans are trying to find out whether he's serious when he's
talking about a political settlement or whether he's just playing with us.

And unfortunately, I'm afraid the latter is the case. So because of that, you can't
expect a solution at the root, namely Syria.
LACQUA: Given all this, the market turmoil, China, concerns about deflation,
geopolitics and also the risk of (INAUDIBLE), is there anything that would make us
hopeful about the next 12 months?
George Soros: Look, I can see the building stones being placed for solving all the
problems. There are six of them, the crises, with the exception of Greece.
And all you need to do is to put it somehow together, because all those con -- they
are all interconnected. And you have to put it together and you have to solve one
problem, which is the, to my mind, the key is this asylum policy.
So I've been very much engaged in bringing this apart -- about. We are engaged in
all over Europe on this issue. This is a major -- it has always been a major issue for
my foundations. You know, I was myself a stateless person, a migrant, for 15 years.
But the migrants in those days were better treated. So I could study, I could get a
job, I could have a travel document. You know, I had a plan to make $100,000 and
then retire on the proceeds. And I could outperform that target. All this while I was a
displaced person.
So unfortunately -- so now that I am a bit of a senior statesman, my loyalty is for the
stateless people.
LACQUA: I'm going to take questions from the floor, so if you do have any
questions, please e-mail themsorosdavos2016@gmail.com. And whilst you do, then
I already have a couple of questions.
Mr. Soros, just give us a sense of how you were talking about these problems and
the refugees also bursting at the seams.
Is there a chance that actually the world economy falls into recession because of
everything we've talked about just now?

George Soros: Yes. No, I mean the -- the deflation and the global slowdown makes
everything worse. It's a bad background for sectoral changes. So it compounds the
difficulties.
But as I say, I see the turnaround afterwards. So I see the end -- the light at the end
of the tunnel, I just don't know how to get there.
LACQUA: One question which is coming in, which is greater, the amount of money
you made on your deflation trade or the amount of money you gave away in 2015?
George Soros: Unfortunately, I didn't make enough because I give away a billion
dollars a year. And that's -- it's a smaller trade.
LACQUA: We have another question.
What do you think of social impact bonds as a way to fund critical human needs?
George Soros: I think it's a -- those are interesting proposals. I haven't been deeply
involved in them. But I think it's a -- I've heard about the proposal that was launched
here in Davos and I think it's a good initiative.
LACQUA: So we've mentioned a lot of crises, but we didn't talk about the U.S.
elections. How worried are you by the popularity of Donald Trump?
George Soros: Well, it's un -- Donald Trump is doing the work of ISIS.
(LAUGHTER)
George Soros: ISIS and before that al Qaeda discovered the Achilles' heel of
Western civilization, the fear of death. And when it -- it's -- it interferes with reason
and people do things out of fear which is actually harmful.
And that's what -- by fear-mongering, Donald Trump and the others, Cruz and so on,
are doing the work of ISIS.

And the -- I actually listened to the debates. And it's a very simple message. I found
it difficult to resist it. I was -- you know, it's a -- because it's so elemental.
The only thing that stopped me is the knowledge that it must be wrong to do what
your enemies want you to do. They want people to turn against Muslims, to treat
them as -- with suspicion and convince the Muslim community that there is no
alternative except terrorism.
And so the -- it turns the young Muslim population into a breeding ground for
terrorists. And we must resist that, because we are doing the work of ISIS.
But at the same time, I don't think the threat by ISIS should be overestimated
because they are very successful in exploiting this fear of death in the Western
society.
But they are losing ground on the -- in their -- in Syria, in the caliphate. And they
know that their days are numbered, because their -- in Iraq, the Iraqi Army is going to
squeeze them out and I think in Syria, they have to govern. And they've turned the
local population against them.
So ISIS is also doing this from a very weak position.
So this is the amazing thing in the world today, that it's sort of a competition of
weakness.
LACQUA: But what does the fact that Donald Trump is not fading, right, that he -- he
is still very popular -- tell us about the angst or fears about voters and -- and what
are the polities -- policies that the voters in the U.S. should be focusing on?
George Soros: Well, here, I have to confess to a little bit of bias, so take that into
account. I think it all -- it's going to lead to a landslide for Hillary Clinton in the popular
vote, not in the electoral vote, because there, paid political announcements will have
a big role.
And so the electoral thing will be closer. But the popular vote will be a landslide
because she is campaigning for the general elections, whereas the Republicans are
fighting for the primary. And the primary is a small minority of extremists.

And so they are all moved -- moving in that direction. And while I don't think that
Donald Trump has any chance of being elected, he will -- may have the role of
kingmaker, because he will have -- he's lasted long enough, he will get quite a bit of - quite a few votes.
LACQUA: But you think Hillary Clinton is a done deal...
George Soros: I think I...
LACQUA: -- for -- for the Democrats?
George Soros: Yes. And I do think, actually, she's the one who's most qualified. But
that's my bias.
LACQUA: I have another question. How does reflexivity fit into the current
deflationary theme?
George Soros: Well, that would -- have to tell you more about the conceptual
framework that I use for the analysis. And that's -- I call it the human uncertainty
principle. And it's built on two pillars -- fallibility and reflexivity. And the main idea is
that natural science has been more successful in bringing the force of -- forces of
nature, understanding the forces of nature and bringing them under our control than
we have been able to govern ourselves.
So as a result, our ability to destroy our civilization has increased and our ability to
govern ourselves hasn't.
And so we are -- we have the capacity to destroy ourselves, with obviously a global
(INAUDIBLE) climate changes, manmade, is a typical example or a -- of that. And
we haven't got international governance. In fact, it's breaking down.
So that's the situation.
However, I think we are learning more about how markets and societies function, so
there is a revolution in the social sciences.

I set up The Institute for New Economic Thinking, INET, in 2009. And I think we have
already convinced the world that the prevailing economic doctrine of efficient
markets and rational expectations is false.
But we haven't yet produced new insights. But it's now happening. And we are
learning a lot. And I am hopeful that we'll learn enough and fast enough that we will
learn to bring deflation under control.
And there, I think actually at that turn, we'll see the chairman of INET, who was, you
know, before the head of the British equivalent of the SEC and so on. He will -- he
wrote a book which I think gives a -- the -- the solution, actually, because he says
that we have more that -- the difference between now and 1930s, that we go into the
crisis already over indebted.
And therefore, you can't just increase the debt. What you need to do, actually, is to
print money.
LACQUA: You can't just print money.
George Soros: What?
LACQUA: You cannot just print money.
George Soros: Well, you can, but it's against -- against the rules, particularly in the
European Union. So you have to find a way around it. And you can do it.
LACQUA: I have a question on China. There is a lot of pessimism in China, but will
the crisis situation also be an opportunity to push through reforms?
George Soros: China is at a crossroads. Xi Jinping wants to impose party discipline
and at the same time he's trying to find a market solution. And the two can't be
reconciled. So one or the other has to give.
Either the -- there has to be political reforms, as well as economic reforms, or the
transition will fail, the market-based transition.

We have a great interest that it should succeed. So we have to sort of support it as

much as one can from the outside.
But it's really up for grabs. And it's one of the big unresolved questions. I hope that
the -- actually, there is a lot of resistance inside China to this tight party control.
There's a lot of open society people inside the government. And they are putting up a
pretty strong resistance.
And I hope they will succeed.
LACQUA: If you have questions, do e-mail them in. We still have just one or two
questions. On China, the vice president of China was here in Davos. And he says
they are not actively pursuing a policy of devaluating the yuan.
Do you believe him?
George Soros: No, I think that they made a commitment to -- when Xi Jinping was
in Washington. He made a commitment that he will bring the depreciation of the
currency. But the depreciation against a basket of currencies, which nevertheless
involves depreciation against the dollar, because the current -- the renminbi was tied
to the dollar. Now, it's a basket.
And if the dollar appreciates, it -- then the renminbi depreciates. And that's still
happening.
So...
LACQUA: I have -- I have two final questions.
What do you -- why do you think Poland is copying Hungary in its politics and
political choices? And where will this lead to?
George Soros: Poland and that...
LACQUA: Poland...

George Soros: -- Poland...

LACQUA: Poland copying Hungary.
George Soros: Yes, well, Poland is copying Hungary and that's a very unfortunate
development because Poland is a big country compared to Hungary. It's been a very
successful coun -- country, also. The economy has been one of the strongest in
Europe. And the new regime has taken the play book from Orban (ph) and
introduced it.
And it really violates the laws of the European Union. And the European Union is -has responded to it rather vigilantly and is now cracking down.
And (INAUDIBLE) has downgraded, so the zloty has fallen and I think the polish
population has woken up that they've made a mistake.
They were voting against the previous government, but there was no loyal
opposition. There was only a disloyal opposition.
So they brought the disloyal, anti-European party into power. But Poland -- the polish
population is very much committed to Europe and very worried about Russia.
So there is now serious resistance and I hope it will succeed.
LACQUA: One final question.What is the biggest threat to the open society today?
George Soros: Well, the open society always -- is always under threat. Right now,
you have this -- the ISIS -- the jihadi extremism, for instance. But open society has
always some excesses that it has to combat.
In my generation, it was communism, actually. So every generation has to go
through every experience that open society could collapse.
It's a -- how should I say, it's a very advanced process and reason doesn't naturally
prevail. And let's say the fear of death now can really undermine the rule of reason.
And that's what's happening.

LACQUA: George Soros, thank you so much.

George Soros: Good. Thank you.
(APPLAUSE)