Geroge Soros: US Inflation Fears are Real
This is a transcript of top stories presented by China's CCTV Business Channel as produced by CNBC Asia Pacific.
A big hello to our viewers across China, I'm Saijal Patel and you're watching “Asia Market Daily”.
The US Federal Reserve did the expected this week, leaving ultra low interest rates unchanged, and pledging to continue with its quantitative easing program.
The Fed's also not alarmed about inflation, saying although commodity prices have risen, longer term inflation expectations remain stable.
But speaking on the sidelines of the World Economic Forum in Davos, billionaire investor George Soros told CNBC inflation fears are real.
George Soros, Chairman, Soros Fund Management, Davos: I think the fear of the deflationary pressure or deflationary pressures have actually been avoided by quantitative easing and all that. So now we are on verge of tipping over to inflation. But you still have monetary easing. So effectively if you now have a little bit of inflation with zero interest rates, you effectively have negative real interest rates. And that is very simulative of the stock market.
Maria Bartiromo, CNBC: Where specifically are you seeing the inflation in the U.S.?
George Soros, Chairman, Soros Fund Management, Davos: I think basically imported from China because let's say footwear from China will go up in price because of the wage increases and increase in raw materials.
Maria Bartiromo, CNBC: Talk to us about stimulus versus austerity. We keep hearing a debate you know, when we keep hearing these austerity programs all it means is job losses, so how to get back on track if we keep creating austerity programs when in fact we need stimulus, where are you on this argument?
George Soros, Chairman, Soros Fund Management, Davos: This is a very political thing because the Republicans are going to put the squeeze on the states and local governments because they really want to eliminate the unions, the power of unions in the states. And the unions are one of the main sources of support for democratic party and they want to eliminate that. So they'll be very strict. Refuse any kind of tax increases that could bring relief. So they'll have to cut services, and they'll have to cut pensions, and basically probably be practically bankrupt."
Maria Bartiromo, CNBC : So would you avoid muni bonds?
George Soros, Chairman, Soros Fund Management, Davos: I would be very careful, and I think probably the difficulty of selling bonds or the cost of selling bonds will probably go up, will reinforce the crisis.
Maria Bartiromo, CNBC : This last year the Euro has truly been tested in a real way, and the skeptics said that this would happen. Do you think it could break? Could the Euro go away?
George Soros, Chairman, Soros Fund Management, Davos: No it's clear that Europe has made a commitment to preserve the Euro and the flaw in the Euro, the missing ingredient which was a common treasury is now actually being remedied by creating this emergency fund and making it permanent. So that's the answer to the missing element in the Euro. However there will still be a very serious problem, and that is the Euro was suppose to bring about convergence within Europe. In fact it created divergence. You have Germany and the northern states doing very well, the southern states that had the real estate bubble now in big trouble with a lot of debt and so on. And this two speed Europe is being now sort of cast in stone with the new arrangements for the Euro and that will be politically very very disruptive so there's still an unsolved problem. How do you bring the laggards up.
Elsewhere, the CEO of developer Soho China says Beijing's property measures are only having a limited impact on real estate prices.
Speaking in Davos, Jang Sin told CNBC the Chinese market economy is becoming stronger than what the government thinks.
(SOT) Zhang Xin, CEO, SOHO China:
“I'm doubtful because it's not like the first time they are doing it. Even last year, if I were to go to borrow money from Chinese banks I'd pay 10% higher interest than other companies. But despite that, it hasn't really stopped developers posting a record year and we know that international capital markets are wide open for Chinese companies, Chinese developers on the market.”
The 45 year old billionaire says Beijing's measures alone are not enough to control rising prices, because China is "part of the global economy now".
(SOT) Zhang Xin, CEO, SOHO China:
“So long as the government needs the economic development, needs and will continue to provide credit in the system, that money always finds its way to the higher yield area. And if real estate is the area then I think it's just very hard to control it.”
That wraps up the latest “Asia Market Daily”.
I'm Saijal Patel from CNBC Asia.
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