The European Union represents a significant part of the world’s economy. The sovereign debt crisis and the 2008 meltdown have been persistent issues. The European Central Bank has taken extraordinary steps to implement quantitative easing in the European Union to stimulate economic growth. The PIIGS nations; Portugal, Ireland, Italy Greece and Spain have been financially bailed out by the European Union time after time. Mandatory austerity measures have ben put in place to get those free-spending nations in line, but those measures aren’t working, according to billionaire George Soros.
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Greece has been the fly in the healing ointment that the EU dispensed, and that fly is spreading negative consequences for the EU and the world’s economy, according to Mr. Soros. It’s safe to say the issues surrounding the PIIGS nations will be one of the catalysis for a European Collapse. If the EU does collapse, Soros believes China’s economic issues will deepen the potential recession.
Mr. Soros recently told Bloomberg.com that the Chinese government has imposed capital controls in order to keep money within its borders. Chinese investors don’t have many options when it comes to investing. Consequently, Chinese real estate and stocks have become expensive. Those signs could lead to the Chinese bubble popping sooner than economists are predicting. The Chinese government has implemented circuit breakers in their stock markets to curb short selling. Soros is betting the China’s currency, the yuan, will depreciate against the dollar in 2016, and if he is right he stands to make another fortune along with other hedge fund investors that are doing the same thing. The Chinese government said they will stop those investors from making money at their expense, but that remains to be seen.
China’s quest to convert its economy to a consumer-driven economy has led to the overproduction of buildings and cities. Those ghost cities are proof that China has a long way to go before it can get its economic house in order, according to Mr. Soros. And time is running out.
Mr. Soros as well as respected economists from around the globe are predicting a worldwide recession that could stick around for years. There isn’t an easy fix for the economic downturn, according to those economists. The European Union would have to correct the inherent flaws in the Union, and China would have to find a quick way to boost their GDP growth. Both of those scenarios are unlikely.
The new global recession may not develop completely in 2016, but there will be enough signs that will alert the world that it is in progress