(WASHINGTON) Billionaire investor George Soros believes that the 'acute phase' of the financial crisis is 'largely behind us', even as the US economy is only now starting to feel the effect.
The damage done to the global financial system 'has to affect, in my opinion, the real economy', Mr Soros, 77, said in a question-and- answer session in Washington on Wednesday. 'The effect of that is only beginning to be felt. There is a certain time lag.' Just as housing prices 'overshot on the upside', they will overshoot on the way down, Mr Soros said. The US is in the 'very beginning of an uptrend' in foreclosures, he said at an event hosted by the Council on Foreign Relations. With home prices declining, 'to expect that by the end of the year you will have passed through that' is unrealistic, he said.
The US dollar 'would certainly come under renewed pressure' if the Federal Reserve were to further reduce interest rates, Mr Soros said. The Fed cut its benchmark interest rate by a quarter- percentage point to 2 per cent on April 30.
'The fact that they stopped at 2 per cent is now giving the dollar a breathing space,' Mr Soros said. 'So the dollar has stabilised as a result.'
Sovereign wealth funds have been a 'positive factor' in stabilising US financial companies, Mr Soros said. Certain standards need to be set for the funds because they could come under political influence, he said.
The funds, owned and controlled by foreign governments, have bought stakes in financial institutions including Citigroup, Merrill Lynch & Co, UBS AG and Morgan Stanley, after the banks suffered losses on securities linked to sub-prime mortgages. The funds' assets may increase four-fold to US$12 trillion by 2015, according to Morgan Stanley estimates. -- Bloomberg
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