Soros Is Worried About Potential for World War III, Starting With China
Wednesday, 20 May 2015 12:04 PM
Hedge fund legend George Soros is concerned that it all could end in catastrophe — another world war. And China might prove to be the flashpoint, the chairman of Soros Fund Management said at the Bretton Woods Committee Annual Meeting at the World Bank, MarketWatch reports.
If the Asian titan fails in its attempt to shift the economy's focus to domestic demand from exports, Soros sees a "likelihood" that Chinese leaders will resort to foreign conflict to keep themselves in power and prevent the country from falling apart.
And if China chooses the wrong adversary, look out. "If there is conflict between China and a military ally of the United States, like Japan, then it is not an exaggeration to say that we are on the threshold of a third world war," Soros stated.
The solution: the United States should let China's yuan join the International Monetary Fund's basket of currencies, he argued. And in return, China should reform its economy, including acceptance of the rule of law.
Without such an agreement, "there is a real danger that China will align itself with Russia politically and militarily, and then the threat of third world war becomes real, so it is worth trying."
Meanwhile, only six years after the end of the worst financial crisis since the 1930s, some experts are worried another one may be on its way.
They are "warning that the global community has failed to learn the lessons of the Greek debt crisis — or even of Argentina's default in 2001, the consequences of which are still being contested furiously in courts on both sides of the Atlantic," writes The Guardian's Heather Stewart.
Some of the concern stems from the soaring dollar, plunging oil prices and the Federal Reserve's preparation to raise interest rates.
The dollar reached multi-year highs against a range of currencies in recent months, oil prices have hit six-year lows and many economists expect a Fed rate move later this year.
"We're going to have another financial crisis," Ann Pettifor, director of Policy Research in Macroeconomics, told Stewart.
"Brazil's already in great trouble with the strength of the dollar; I dread to think what's happening in South Africa; then there's Malaysia. We're back to where we were, and that for me is really frightening."
Borrowing by developing countries soared 40 percent to $17.3 billion in 2013, according to World Bank data.
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Soros Says China Is Major Risk For World War 3
Soros says it’s mainly about China
Soros was speaking at a Bretton Woods conference at the World Bank, and said that much in global geopolitics depends on the health and trajectory of the Chinese economy.
He set up a straw man argument in his comments, saying that if China’s efforts to move to a domestic-demand driven economy break down, there is a “likelihood” that China’s government would create external conflict to band the country together and maintain their power.
“If there is conflict between China and a military ally of the United States, like Japan, then it is not an exaggeration to say that we are on the threshold of a third world war,” Soros said.
The billionaire investor also pointed out that military spending is currently on the rise in both Russia and China.
Calls for major concession from U.S. to aid in Chinese economic reform
Going further, Soros said it was time for the U.S. to make a “major concession” and permit China’s currency to join the IMF’s basket of currencies. This would give the Chinese economy a big boost as well as turn the yuan into a potential rival to the dollar as a global reserve currency.
However, in return, Soros argued that China would have to agree to make major concessions to reform its economy, including accepting the rule of law in terms of intellectual property and in other sectors.
Moreover, permitting China’s yuan to be a market currency would create “a binding connection” between the China and the global economy. While an agreement like he sketched out will not be easy to achieve, the 80-year-old says the alternative is so unpleasant we really have no choice.
Soros continued: “Without it, there is a real danger that China will align itself with Russia politically and militarily, and then the threat of third world war becomes real, so it is worth trying.”
Soros on trouble in the European Union
In comments reported by ValueWalk around a month ago, Soros said the European Union is currently in “deep trouble,” facing uncertainty from two unfolding crises: Ukraine and Greece.
He commented that while the war in Ukraine is a huge risk for Europe, the situation could actually turn into a positive if U.S. and European leaders support the Ukrainian government in eradicating corruption and creating an environment where free enterprise can thrive. Greece, Soros said, is a decidedly different story.
“The European Union was a very inspiring idea to people like me,” he commented, reflecting back to when EU economies were more balanced. “It was the embodiment of the idea of an open society, like minded countries getting together and sacrificing part of their sovereignty for the common good. It was meant to be a voluntary association of equals.”
Soros continued to say: “Because of the Euro crisis, [the E.U.] has been transformed into something radically different.” He also emphasized that over time two different classes of countries have evolved: creditors and debtors. “The debtors had difficulty meeting their obligations and this put the creditors in charge. They (the creditors) set the rules and made it very difficult for the debtors to exit their inferior status. A voluntary association of equals turned into an involuntary association of un-equals.”
While avoiding making predictions, on Greece Soros noted: “Greece is a poisonous situation. All sides have made a lot of mistakes, and there is a lot of hostility, a lot of negative sentiments…Both sides are willing to hurt the other side even if it hurts them.”