George Soros Says China's Inflation Is `Serious Concern'

in Central Bank decided to raise its benchmark interest rate to 1 in the quarter percent as the eurozone battles inflation while the Federal Reserve holds the line that was yesterday an exclusive interview with Michael McKee and Sara Eisen at the Bretton Woods conference in New Hampshire George Soros calls the ECB's move inappropriate as he shares his outlook on the two central banks there are two very very different perspectives the different direction the directives that govern the behavior of the European Central Bank and the US Federal Reserve because in the case of Europe it's a one-sided directive your only job is to prevent inflation and in the case of the US is a more balanced maintain employment and price stability the delegates who came here in 1944 gave the US and the dollar the prime place in the world does the world need a leader like that now and if so if so which economies it's still the United States well big question whether the US dollar should be the main reserve currency and in fact it's no longer is because it maybe accounts for two-thirds of the monetary reserves but as the euro is there is an alternative and there's a lot of diversification into other currencies and even more into commodities not only gold but actually oil all is now a asset class for investors and that has put some upward pressure on on the commodities do you think in terms of the euro the sovereign debt crisis has diminished the chances of the euros becoming a reserve currency but that's exactly because there are some inflationary pressures from the price of commodities particularly now oil and also food prices have have risen and that is what has induced the ECB to raise interest rates at a time which is einem in my opinion quite inappropriate what about China how much of a concern is the inflation there that is a serious concern because China has really stimulated its economy full force very successfully and now is trying to rein in the rate of growth and is exercising very strong constraints on the banking system but because of that constraint and because of the great demand for money a shadow banking system has a reason that is growing very rapidly so of all the big banks that are under direct central control are in fact refusing to lend there's this shadow banking system which is growing out of control and that's that's now there is a real danger there of wage price inflation because because prices have gone up and particularly real estate prices have gone up because there was a real estate boom and and therefore wage demands have risen and you now have 20 30 percent wage increases so the the Chinese government I think made a mistake not allowing its currency to appreciate which would have controlled the price inflation in this set of that you now have this rage pressure which is a little bit out of their control we're here to talk about new economic thinking to deal with the problems that arose by the outdated financial system the Chinese current economic approach has only been in place for a couple of decades have they done something right that others should emulate over that time they have done they were the major beneficiaries of globalization and they were of course the big winners in the financial crash because their economies was largely isolated because they have capital controls on their currency they have a two-tier currency system whereas the rest of the world following the Washington Consensus allows feim feim movement for capital and you had runaway expansion of credit and leverage which then resulted in the financial crash and China was largely immune so they benefited tremendously and their system which is really stands in contrast to the the international system let's say there's international capitalist capitalism with free movement of capital and then there is what I call state capitalism where the state basically controls the economy and that system actually has performed significantly better than the international system and so now it's beginning to be imitated by others but I think it's a tremendous mistake because that was just one particular set of circumstance when it worked better and they had an advantage because they were the only ones that were controlling capital flows so as a result they not only control their own currency the effectively were controlling the the world currency system so now other countries defensively are beginning to follow them for instance Brazil they're just doubled the surcharge on capital inflows and that is not good for Brazil and it's not good for the global economy

Channel: Bloomberg Quicktake

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Keywords: George, Soros, Says, China's, Inflation, Is, `Serious, Concern', All, Media, Video, Asia, ex., Japan, Australia, Pacific, Rim, Audio, Visual, Banking, Bloomberg, Bond, Market, News, Central, Banks, China, Economy, Commodities, Markets, Currencies, Currency, Economic, Monetary, Union

Id: z_ajJmAF2aU

Length: 7min 21sec (441 seconds)

Published: Fri Apr 08 2011