Billionaire investor George Soros said the US economy should pursue more fiscal stimulus instead of joining international efforts to reduce budget deficits.
Soros said spending cuts are the “wrong consensus” in the current economic environment. He said the global economy is still not at equilibrium, even though financial markets are functioning again, and US fiscal restraint is limiting the recovery.
“It threatens to push the global economy into a much longer-lasting stagnation than would be necessary,” Soros, chairman of Soros Fund Management LLC, said in a forum at the IMF’s annual meetings on Saturday.
The US has been “driven to quantitative easing because the political debate has been one basically by the Republicans, who argue for balancing the budget and no more stimulus.”
The US is using this weekend’s meetings to call for the IMF to take a more active role in promoting global rebalancing and in rebuking countries that undervalue their currencies. The initiative is aimed at China, which has limited the yuan’s rise to about 2 percent since agreeing in June to allow appreciation.
Soros said China deserves a stronger voice at the IMF as the fund deliberates how to give emerging-market nations a bigger share of board seats and voting rights.
“China is a part of the IMF, but it’s more or less a passive part, because it doesn’t have enough voice and is not sufficiently drawn into the deliberations,” Soros said. “A lot depends on how this is going to work out.”
Soros said China ought to join international efforts to reduce corruption and improve governance in poor countries, especially those with natural resources that could be contributing to prosperity.
He said China’s decision to stay out of many international initiatives could be destabilizing if widely adopted.
“China in particular feels much more comfortable with bilateral relations” and “what I call state capitalism, as opposed to international capitalism,” he said.
“As long as China is the only one following that course, it actually derives very substantial benefits, advantages from that. But if everybody does it, it’s the end of the multilateral system,” Soros said.