BT: Soros warns of 'serious' US economic correction

Business Times - 07 Nov 2007

Soros warns of 'serious' US economic correction

He says things are worse than what Fed chief sees

(NEW YORK) Billionaire investor George Soros has forecast that the US economy is 'on the verge of a very serious economic correction' after decades of overspending.

'We have borrowed an awful lot of money and now the bill is coming to us,' he said during a lecture at the New York University, adding that the war on terror 'has thrown America out of the rails'.

Asked whether a recession was inevitable, Mr Soros said: 'I think we are definitely in for a slowdown that I think will be a bigger slowdown than (Fed Chairman Ben) Bernanke is seeing.'
On the same note, David Rosenberg, chief economist for North America at Merrill Lynch & Co in New York, forecast that the US economy will come close to stalling in the fourth quarter.

The economy will probably grow at an annual rate of between zero per cent and one per cent, Mr Rosenberg said in his weekly report to clients dated Nov 2. He currently forecasts a 0.7 per cent pace of expansion this quarter.

The third-quarter's 3.9 per cent growth rate was artificially boosted by 'non-recurring factors' that will disappear in the last three months of the year, Mr Rosenberg said.

Add to that the collapse in sub-prime-mortgage lending and a worsening housing slump and the expansion will slow, he said in an interview on Monday.

'This is by far the most leveraged economic expansion in modern history,' Mr Rosenberg said in the interview. Parts of the mortgage market 'just aren't coming back. This is going to have a deleterious impact on growth.'

A drop in gasoline prices even as oil prices jumped, a surge in auto inventories before threatened strikes and an increase in defence spending propelled third-quarter growth and won't be repeated, Mr Rosenberg's report said.

On the forex market, Mr Soros, famous for his speculative attack on the Bank of England that made him more than US$1 billion, declined to nominate which currencies were more vulnerable currently. He also declined to comment specifically on the dollar.

'I know exactly where the currencies are going to but I'm not going to tell that to you,' he told the audience.

Last week, investment guru Jim Rogers, who co-founded the Quantum Fund with Mr Soros in the 1970s, recommended selling the dollar as well as US investment banks and US housing stocks.

In an interview with Bloomberg News Agency, Mr Rogers said that US credit markets are enduring their worst bubble ever and forecast that it may take six years for them to return to normal.

'Never in American history have people been able to buy a house with no money down,' Mr Rogers said. 'We have the worst credit bubble, and it's going to take a long time to work its way out. You don't cure a bubble in five or six months. It takes five or six years.'

Mr Rogers, the chairman of Beeland Interests Inc, also said he's pessimistic on the US dollar. He said he hoped the Fed raises interest rates to stem inflation, but if it does 'the dollar is going to collapse'. -- Reuters, Bloomberg