By Bill Wilson — Speaking in Denmark on April 16 with that country’s economics minister at an event hosted by the Politiken newspaper, billionaire investor George Soros took aim at austerity measures in Europe, saying they were only making things worse as countries there attempt to control the sovereign debt crisis.
“You can grow out of excessive debt, you cannot shrink out of excessive debts,” Soros said, blasting balanced budget policies as the culprit behind slowing economic growth. In a Financial Times piece, he called European Union-imposed austerity measures “counterproductive”.
The irony is Europe is already in a recession that was brought on not by balanced budgets or fiscal responsibility, but by too much government debt.
In Greece, for example, this came in the form of excessive public pension and health care obligations. In Ireland, it took the form of guaranteeing the losses of failed banks as the country’s housing bubble popped.
Soros’ comments came after a far more revealing speech in Berlin on April 13 where he really got to the heart of the matter. There, he spoke on a panel entitled “The Future of Europe” at the Institute for New Economic Thinking’s (INET) Paradigm Lost Conference.
There he compared European debtors like Greece and Ireland to “third world countries that have become heavily indebted in a foreign currency”.
Soros explained, “This happened because they transferred their seigniorage rights to the ECB [European Central Bank]. That’s why they can’t print their own money. And because they can’t print their own money, there is a real danger that they would default.”
That’s a rather honest accounting of the current crisis from Soros. Under this analysis, the only thing that apparently separates Europe from the U.S. (or Japanese) debt crises is that we possess far more efficient printing presses in the Federal Reserve and the Bank of Japan as compared to the ECB.
Soros crystallized this seeming reality: “A sovereign that can print the money can’t default, will never default.”
Of course, according to Standard & Poor’s there were about 84 sovereign defaults in fiat currencies between 1975 and 2002, as reported recently by San Jose University associate professor Jeffrey Rogers Hummel. So default is actually a real possibility, even with a fiat currency. But let’s leave that aside for a moment.
Soros’ essential solution is not to “grow out of excessive debt” at all, as none of his policy prescriptions are designed to dramatically expand the private sector. Nor are they designed to create jobs in any capacity.
Instead, Soros wants an ad-hoc solution to the problems created by too much bad debt taken on by sovereigns. Rather than balance budgets and begin paying off their gargantuan debts, Soros wants profligate European nations to lift the Article 123 Lisbon Treaty prohibitions on the ECB from directly monetizing the debt, or to find a way around them.
Even if it means inflation, something the German Bundesbank avoids like the plague, ever aware of the Weimar experience that eventually gave rise to the Nazis, World War II, and 50 million dead.
Said Soros on inflation, “Maybe the currency will lose its value — or some part of its value, but they can always print the money that’s necessary to repay their debts.”
Or maybe, like Weimar, one could wind up with the worst of both worlds: hyperinflation and default.
Contrary to what Soros says, dramatic budget cuts are a way to avoid the false dilemma of default or inflation that he lays out. There is in fact another way. It’s just hardly ever been tried before in history.
But then again, it’s not surprising that someone who has made billions trading currencies would prefer the devastation of inflation over either default or responsible fiscal policies. Those options actually have the benefit of liberating taxpayers from the tyranny of the bank cartel — which owns all of these sovereign debts that cannot otherwise be repaid.
Bill Wilson is the President of Americans for Limited Government. You can follow Bill on Twitter at @BillWilsonALG.