George Soros on Bloomberg 10-04-09 (VIDEO)

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George Soros warns 'zombie' banks could suck lifeblood out of economy

Billionaire investor George Soros has warned that bailing out banks could turn them into "zombies" that suck the lifeblood of the American economy, which he predicted is in for a "lasting slowdown".

He also cautioned that the recent rise in global stockmarkets is a "bear market rally because we have not yet turned the economy around".

His gloomy verdict weighed on Asian stockmarkets today, alongside a report that the International Monetary Fund now estimates that the toxic debts racked up by banks and insurers could spiral to $4tn (£2.7tn).

Tokyo's Nikkei index edged down 0.3% to 8832.85 while Hong Kong's Hang Seng fell 1.1% and Singapore's Straits Times index was down 2.1%. However, the FTSE 100 index in London rose 33 points to 4027.15 in early trading.

Soros said he does not expect the US economy to recover until next year at the earliest.

"The recovery will look like an inverted square root sign," he said. "You hit bottom and you automatically rebound some, but then you don't come out of it in a V-shaped recovery or anything like that. You settle down, step down."

His comments last night came after Morgan Stanley warned the bear market was not over. Its much followed strategy team led by Teun Draaisma moved its recommendation on equities from neutral to underweight.

The team said in a note yesterday: ""We have to decide whether this is towards the end of another bear market rally that we should sell into now that hope has grown, or the start of a much larger advance, maybe even a new bull market. Our decision is to sell into strength now."

Soros stressed that restoring health to the "basically insolvent" banking system and the housing market is key to any recovery. The public-private investment funds introduced to rid US banks of bad debts will work but won't be enough to recapitalise the banks so they can start lending again, he said.

"What we have created now is a situation where the banks will be able to earn their way out of a hole but by doing that, they are going to weigh on the economy," Soros said. "Instead of stimulating the economy, they will draw the lifeblood, so to speak, of profits away from the real economy in order to keep themselves alive."

Analysts agreed that the financial system remains a problem and thought recent optimism that the worst may be over was overdone.

"The market's stance on banks had been too optimistic recently," said Nagayuki Yamagishi, a strategist at Mitsubishi Securities in Tokyo. "Some large US banks have already passed stress tests, but others haven't, and given that results are coming up soon, this simply reignited investor uncertainty."

Source: Guardian

Soros Calls The G20 A Success

Geore Soros, for one, is happy with how the G20 turned out. The hedge fund manager spoke to Maria Bartiromo at the conclusion, lauding the news that the IMF would create $750 billion in special drawing rights. He says this will save countries on their own.

Full transcript:

MARIA BARTIROMO: THE G-20 SUMMIT WINDING DOWN AND NEW PROMISES HAVE BEEN MADE TO DRAMATICALLY INCREASE SPENDING IN EMERGING ECONOMIES. IT IS ONE OF THE TOP CONCERNS OF BILLIONAIRE INVESTOR GEORGE SOROS. HE'S JUST RELEASED HIS BOOK "THE CRASH OF 2008 AND WHAT IT MEANS." IN A FIRST ON CNBC INTERVIEW TODAY I SPOKE WITH HIM ABOUT THE IMF'S ROLE IN HELPING THE POOREST COUNTRIES. [to Soros] YOU'VE SEEN THE COMMUNIQUÉ. YOU'VE BEEN IN SOME OF THESE MEETINGS. WHAT'S YOUR REACTION? WHAT DID YOU THINK ABOUT THE COMMUNIQUÉ?

GEORGE SOROS: THEY MANAGED TO GET MORE THAN I EXPECTED. THEY REALLY PULLED A FEW RABBITS OUT OF THE HAT, AND I THINK IT WAS A VERY IMPRESSIVE COMMUNIQUÉ, AND I THINK GORDON BROWN, IT'S REALLY PROBABLY HIS FINEST HOUR.

BARTIROMO: WHY?

SOROS: BECAUSE HE REALLY DID SEE THE NEED FOR ADDRESSING THIS GLOBAL PROBLEM. BECAUSE YOU HAVE THE LESS DEVELOPED WORLD FACING A POTENTIAL COLLAPSE AS THE BANKS DON'T ROLL OVER THEIR LOANS. SO SOMETHING HAD TO BE DONE. AND HE DID MANAGE TO BRING IT TOGETHER. AND I WOULD SAY THAT IT'S PROBABLY THE FIRST TIME THAT THE AUTHORITIES ARE ACTUALLY AHEAD OF THE CURVE.

BARTIROMO: LET'S TALK ABOUT THE MONEY FOR THE IMF. IT COULD RISE TO $750 BILLION. IS THAT ENOUGH? AND MORE IMPORTANTLY, WHO SHOULD GET THE MONEY?

SOROS: WELL, THEY MANAGED TO PUT TOGETHER A BIGGER PACKAGE THAN ANYBODY EXPECTED. AND VERY IMPORTANT IS THE ISSUE OF SPECIAL DRAWING RIGHTS. $250 BILLION. THAT IS EFFECTIVELY CREATING - INTERNATIONALLY CREATING - NEW MONEY. AND THAT WILL HELP TO ALLOW THE COUNTRIES THAT ARE NOT ABLE TO PRINT THEIR OWN MONEY THE WAY WE CAN, ACTUALLY TO STIMULATE THEIR ECONOMIES. AND I THINK THE WAY FOR THE RICH COUNTRIES TO TRANSFER THE ALLOCATIONS TO THE MOST NEEDY COUNTRIES CAN BE WORKED OUT.

BARTIROMO: SO ARE YOU SAYING THE EFFORTS AS FAR AS THE IMF AND THE COMMUNIQUÉ OVERALL HAVE COMPLETELY CHANGED YOUR MIND? A WEEK AND A HALF AGO YOU WERE OUT VERY VOCAL SAYING LOOK, THE IMF IS GOING TO HAVE TO BASICALLY BAIL OUT THE UK, HERE WE ARE SITTING IN ONE OF THE GREATEST CITIES IN THE WORLD -

SOROS: NO. THAT WAS A MISLEADING HEADLINE GIVEN TO AN INTERVIEW WHERE I SAID IT'S MOST UNLIKELY THAT BRITAIN WOULD NEED TO GO TO THE IMF. HOWEVER, THE FACT THAT WE CREATED SUCH AN OUTCRY SHOWS WHAT A STIGMA THERE IS ATTACHED TO HAVING TO GO TO THE IMF.

BARTIROMO: A LOT OF PEOPLE WHEN YOU WERE TALKING ABOUT THE UK AND THE NEED FOR HELP AND REALLY A BAILOUT, PEOPLE WERE SAYING, WELL, WAIT A SECOND, GEORGE SOROS YEARS AGO SHORTED THE POUND AND MADE MONEY ON THIS AND MAYBE HE'S PLAYING HIS BOOK. IN FACT, LORD MANDELSON SAID THAT. ARE YOU SHORTING THE POUND RIGHT NOW?

SOROS: NO, I'M NOT. FIRST OF ALL, AGAIN, I'VE WITHDRAWN NOW FROM ACTUALLY RUNNING THE FUND. I DID IT LAST YEAR. WE CAME THROUGH IT. NOW I'VE HANDED IT BACK TO THE PEOPLE WHO CAN DO IT. SO I'M OUT OF THE MARKETS, AS I WAS BEFORE I CAME OUT OF RETIREMENT. SO I'M BACK IN RETIREMENT.

BARTIROMO: I DON'T KNOW IF YOU'RE GOING TO BE ABLE TO STAY IN RETIREMENT VERY LONG, FRANKLY. BUT LET ME ASK YOU ABOUT THE OPERATIONS IN TERMS OF HEDGE FUNDS OVERSIGHT. BECAUSE THIS IS ANOTHER THING THE GROUP SAID, THAT THEY WANT MORE REGULATION ON HEDGE FUNDS. DID YOU AGREE WITH WHAT THEY SAID AND WHERE THEY'RE GOING IN TERMS OF MORE OVERSIGHT?

SOROS: WELL, I THINK YOU ABSOLUTELY WILL NEED MORE REGULATION. BUT YOU REALLY NEED TO HAVE BETTER REGULATION. AND YES, WE HAVE ALLOWED THE MARKETS A FREE HAND, AND OF COURSE THAT WAS VERY UNSOUND. BUT WE DON'T WANT TO GO OVERBOARD NOW WITH REGULATIONS BECAUSE THE FACT THAT MARKETS ARE IMPERFECT, THAT THEY DON'T ANTICIPATE THE FUTURE CORRECTLY, REGULATORS ARE JUST AS IMPERFECT.

BARTIROMO: CAN YOU CHARACTERIZE THE SITUATION FOR US IN EASTERN EUROPE RIGHT NOW?

SOROS: WHAT HAPPENED WHEN THE WESTERN EUROPE AND AMERICA GUARANTEED THE BANKING SYSTEM THE OTHER COUNTRIES IN EASTERN EUROPE COULDN'T PROVIDE SIMILARLY CONVINCING GUARANTEES, AND THE BANKS IN THE WEST STARTED PULLING THEIR CAPITAL OUT OF THERE AND PULLING THEM BACK. AND THE NATIONAL REGULATORS ALSO ENCOURAGED THE BANKS TO LEND AT HOME AND NOT ABROAD. AND SO THAT CREATED A CRISIS FOR EASTERN EUROPE.

BARTIROMO: WHAT ARE YOUR THOUGHTS ON THE DEVELOPMENTS SURROUNDING MARK TO MARKET? FASBY COMING OUT AND SAYING THAT THEY DO WANT TO MAKE IT EASIER, A LITTLE MORE LAX IN TERMS OF THE REGULATION FOR MARK TO MARKET. WHAT ARE YOUR THOUGHTS ON THAT?

SOROS: THERE I REMAIN REALLY CRITICAL BECAUSE I THINK MUCH MORE EFFECTIVE WOULD HAVE BEEN TO RECAPITALIZE THE BANKS. AND BECAUSE OF THE HISTORY OF THE WAY THE TARP MONEY WAS SPENT, IT WAS REALLY VERY MESSY AND VERY BADLY DONE. AND BECAUSE OF THAT THERE'S INCREASING RELUCTANCE BY CONGRESS TO MAKE NEW MONEY AVAILABLE. AND YET IT WOULD BE MUCH MUCH BETTER TO CREATE CLEAN BANKS. BANKS THAT ARE ABLE TO LEND. AND I THINK WE MISSED THE BOAT ON THAT. AND THAT MEANS THAT WE WILL BE SPENDING A LONG TIME ALLOWING THE BANKS TO DIG THEMSELVES OUT OF A HOLE. AND WHILE THEY ARE DOING THAT, THEY WILL NOT BE REALLY PROVIDING SUFFICIENT CREDIT TO CARRY ON BUSINESS. THEY WILL BE CHARGING A LOT AND GENERALLY IT'S GOING TO WEIGH ON OUR ECONOMY FOR A PERIOD OF TIME.

BARTIROMO: I KNOW YOU SAW THE STORY ABOUT SOME HEDGE FUNDS SAYING, "LOOK, WE'RE GOING TO LEAVE LONDON. THE TAX SITUATION IS NOT FAVORABLE. WE DON'T LIKE THE BUSINESS CONDITIONS HERE. WHAT DO YOU THINK ABOUT THAT?

SOROS: WHERE ARE THEY GOING TO GO? ANOTHER PLANET? I MEAN, YOU KNOW, THIS IS - THERE IS NO ALTERNATIVE BECAUSE NOW WITH THE TAX HAVENS BEING BROUGHT UNDER CONTROL I THINK HEDGE FUNDS WILL HAVE TO GET USED TO BEING REGULATED.

BARTIROMO: GEORGE IS THERE ANYWHERE IN THE WORLD DOING WELL RIGHT NOW? I MEAN ANYWHERE THAT YOU WOULD SAY, LOOK, THIS IS SAFETY, THIS IS WHERE I WANT TO BE?

SOROS: I THINK THAT ACTUALLY CHINA STANDS TO EMERGE FASTER AND BETTER THAN MOST OTHER COUNTRIES. I THINK, ACTUALLY, BRAZIL THAT HAS BEEN HURT BY THIS FINANCIAL CRISIS AFTER LEHMAN IS ALSO BASICALLY QUITE WELL SITUATED. SO I THINK INDIA, BECAUSE IT IS LESS TIED IN WITH THE REST OF THE WORLD. SO I THINK THAT THE GLOBAL ECONOMY WILL PROBABLY START GROWING NEXT YEAR.

BARTIROMO: GEORGE, THE CHINESE SAID THAT THERE SHOULD BE ANOTHER OPTION AWAY FROM THE U.S. DOLLAR AS THE RESERVE CURRENCY. DO YOU AGREE WITH THAT?

SOROS: IN THE LONG RUN THAT MAY BE APPROPRIATE. IT'S NOT IN THE CARDS NOW. THE SPECIAL DRAWING RIGHTS THAT ARE NOW BEING ISSUED, THOSE ARE NOT CURRENCY. THEY'RE IN A BOOKKEEPING ENTRY AT THE IMF. YOU HAVE TO CONVERT THEM INTO A CONVERTIBLE CURRENCY BEFORE YOU CAN USE THEM. I THINK PROBABLY THE CHINESE YUAN WILL ALSO BE MADE ONE OF THE CURRENCIES INTO WHICH YOU CAN CONVERT IT. WHICH IS APPROPRIATE BECAUSE CHINA IS NOW VERY IMPORTANT COUNTRY. BUT WE ARE NOWHERE NEAR THE SDRs BECOMING AN INTERNATIONAL CURRENCY.

BARTIROMO: LONG TERM WHAT WOULD THE CURRENCY BE? WOULD IT BE THE CHINESE YUAN?

SOROS: NO. I THINK THE DOLLAR IS THE DOMINANT CURRENCY FOR A WHILE TO COME. BUT IN THE LONG RUN I THINK IT WOULD BE IMPORTANT THAT THE U.S. SHOULD BE SUBJECT TO THE SAME DISCIPLINE AS THE REST OF THE WORLD.

BARTIROMO: MY THANKS TO GEORGE SOROS.

G20 Summit : George Soros says its success hovers on a 'knife edge'

George Soros said the success of the G20 meeting was "hovering on a knife edge between success and failure" and would depend on a pledge to increase the global money supply to help poor countries.

In a speech at the London School of Economics, the billionaire investor said the G20 should create about $250bn of the International Monetary Fund's Special Drawing Rates – international reserve assets which can be exchanged for major currencies – to make an impact. IMF member countries are allocated SDRs in proportion to their IMF quotas.

"Rich countries that are able to print their own money and provide guarantees should re-allocate their allocations to the most vulnerable countries. It boils down to the international creation of money," Mr Soros said.

"It would be a tremendous accomplishment for the G20, a practical achievement to move the world forward. The principle of doing it and endorsement from the G20 leaders would be the most one could expect [from the summit meeting]."

Leaders of the G20 meet in London tomorrow with the global economy facing what the OECD described yesterday as the “deepest and most synchronised recession in our lifetimes”

George Soros Forecasts Housing Crash and Price Inflation

George Soros recently made two predictions. First, commercial real estate will decline by 30% in the United States. "It is inevitable, it is written, everybody knows it, there are already some transactions which reflect and anticipate it, so we know, they will drop at least 30 percent." Second, when banks finally begin to lend, the swollen monetary base will lead to serious price inflation. He called this "an explosion of inflation."

These two predictions seem to be in opposition to each other. A fall of 30% in commercial real estate would surely place downward price pressure on the American economy. Local banks are more heavily invested in commercial real estate than residential. Fannie Mae and Freddie Mac created the housing boom. The government and the Federal Reserve System are trying to bring the boom back to life by buying the debt of these two agencies, using FED fiat money. Mortgage rates are now under 5%. Still, the residential real estate market continues to fall.

COMMERCIAL REAL ESTATE

Commercial real estate's future value is ultimately a function of the net revenues it can generate. The economy continues to remain in recession. The expectation of national unemployment in the 9% range is now conventional. As consumers shift spending from discretionary to non-discretionary goods and services, existing businesses that cater to discretionary spending will come under intense pressure. Some are going to go out of business. They will cancel their leases.

I had a taste of this recently. My wife and I went to lunch downtown in our little community. It is the county seat. The county has recently opened a large, modern facility several miles from the town square. The old buildings are still occupied by the county, but not with the same high concentration of employees.

We headed for a great little Mexican restaurant. It was gone. Next door, a 2,700 square foot facility was empty. Another empty office was three doors down. There used to be a sandwich shop down the street. Gone.

This has happened in less than two months. Businesses that were doing fine are gone forever. The owners should have seen this coming, but owners are optimistic. They think, "It won't happen to me." But it does.

Every owner should have gone shopping for a new location as soon as the county announced the new building. I assume that was at least five years ago. Maybe it was more. Those store fronts should be occupied today by businesses that are not dependent on walk-in traffic from county employees. The rent should have fallen as soon as the leases ran out in the year that the new facility was approved. But this is never how it works. The existing renters did not perceive that their business plans were doomed. They pretended that the flow of customers would not change, despite the fact that the customers would no longer be within walking distance.

On the door of the sandwich shop was a forlorn note announcing the closing and thanking the customers for their loyalty. Loyalty? When? For how long? What percentage of customers? Most of the ex-customers will never read that sign. They won't go downtown again. If they do, they will not stay long enough to buy a sandwich.

Now the owners of all that space are facing a disaster. We are in a recession. Banks will not lend to small start-up businesses. The landlords had bet their future on rental income from small businesses that catered to the county's employees. Now they must find completely different types of renters. The rental space is no longer prime. They should have canceled leases, year by year, on every business that was county employee–dependent. The recession would have hit, but they would now have a cushion. They have no cushion.

People see things coming. They ought to understand that new market conditions will force major plan revisions. Bankruptcy is one of those plan revisions. But people assume that whatever trends are good will continue, while trends that are negative will evaporate. Their optimism leads them into business. Then it leads them out.

It takes a systematic act of will to follow the implications of an irreversible trend. The trend of traffic was obvious, given the new county building, but existing renters refused to extrapolate the trend. They did not devote time and effort to overcoming this trend by starting over elsewhere, while they still had working capital. Instead, they just sat.

What is true of a business owner is also true for most employees and most investors.

THE REAL ESTATE FALL-OUT

How many investors had heard of subprime mortgages in 2005? Of those who did, how many of them knew of the packaging of these mortgages? How many knew that the credit-rating services were rating as AAA packages that are today being sold at 30 cents on the dollar? How many knew that these packages were being bought by hedge finds with borrowed money at leverage of 30-to-1? On and on it went.

The fall-out was not perceived by regulatory agencies, the entire investment banking industry, commercial banks, Federal Reserve economists, and European bankers who decided that 30-to-1 was too conservative.

We are now in a recession the likes of which nobody has ever seen. The fall-out continues to fall out. Investors think that the problem is solved. Then two more appear.

Soros' words ought to be accurate: "It is inevitable, it is written, everybody knows it, there are already some transactions which reflect and anticipate it, so we know. . . ." They are not accurate. The phrase, "so we know," is wrong. "We" do not know.

The typical bankers who lent 60% of their depositors' money to commercial real estate projects are in the same situation as the landlords of the now-empty space in my town square were two years ago. They did nothing to protect themselves when they might have been able to. They sat, just as their lease-holders sat. They all knew that the courthouse was going to be run at quarter staff. But they did not perceive that the departure of the employees would bankrupt business after business.

Local bankers are sitting there, hoping for the best. They are not in emergency mode, preparing for the departure of their tenants. Their tenants will be forced by market conditions to close their doors.

The market is relentless. It will have its way. The reality of falling traffic and lower purchases will make itself felt, as surely as it made itself felt last Christmas. The discounting began as soon as the shopping season did. Yet hope remained. The press kept saying that things were slow, but that business owners hoped for a buying spree in the final days. It never materialized. It was wishful thinking.

Consider this fall-out. Banks will find that borrowers cease paying. Developers are going under now. Abandoned, 70% completed strip malls testify to the spreading crisis. Empty large anchor stores no longer provide the overflow foot traffic for the shops that once profited from the anchor business, which now has departed. Properties like this line every main drag in the country. Has the local Circuit City building been rented to a new customer in your town? It hasn't in mine.

This is truly a case of falling dominoes. At this point, there is nothing that the borrowers can do, other than to hope, pray, and delay. The banks that lent to them must cut back on new loans, either now or when the defaults force the change.

Companies with good credit and years of reliable repayment now face the prospect of their banks calling the loans. The banks will refuse to roll over these loans. They will have no choice. Their capital will be gone. It is gone now, but they have not yet written down the losses. They will not be able to delay much longer unless the Financial Accounting Standards Board revises FAS 157 in the next week (which it may do).

Because the initial phase of this recession has been related closely to residential real estate, which was marketed nationally by Freddie and Fannie, most local businessmen have not faced the problem of collapsed bank capital. Their lenders have continued to roll over their lines of credit. This is about to end.

I remember the situation in Texas in 1985, when oil fell and the real estate bubble collapsed. Good businesses that had long worked with a local bank found that the local bank had been absorbed by a distant national bank. The local staff had either departed or had handcuffs put on them by a national committee that knew nothing of local conditions. Businesses that had depended on a long tradition of borrowing and repaying found that they were facing bankruptcy.

A line of credit today is considered a permanent operating condition. Businesses no more plan to pay off these loans than the U.S. Treasury expects to pay off its lines of credit. The name of the game in both markets is rollover. The Treasury can play this game because it has China and the Federal Reserve to keep the money flowing. A local business does not.

Soros makes a public statement about 30% losses in commercial real estate, and it does not get top billing. It is just more noise. Soros is very rich. He made his money in leveraged currency futures markets, the toughest market there is. If he says there will be a 30% decline, plan for this.

But how can you? If you run a business, you can pay your bank to sign an agreement to supply credit. That is worth the money, I think. It will give you a source of capital, if your accounts receivable really do become accounts paid. Your customers are using you as their line of credit. You will find it difficult to speed up collections. You will find it impossible to get them to pay cash up front.

Your employer may need a different client base, but it cannot get it in a recessionary economy. The competition for such clients is fierce.

PRICE INFLATION

Soros also predicted explosive price inflation. He has looked at the monetary base of the Federal Reserve. What else could he conclude? When banks pull their excess reserves out of Federal Reserve accounts that pay 0% to .25%, and they start lending – to anyone, on any terms – the fractional reserve process will begin.

Soros knows currencies better than any other public figure. He has become rich from his ability to predict and even trigger major currency devaluations. Central bankers insist that everything is fine; Soros takes a position on the other side of the trade; and the central bank capitulates. It hands him a billion or more dollars' worth of profits. He goes on to bigger fish to fry.

He could have said this: "It is inevitable, it is written, everybody knows it, there are already some transactions which reflect and anticipate it, so we know, that prices in dollars will rise at east [xx] percent." He didn't.

The public does not perceive any of this. It has no idea what the monetary base is, or what this has to do with M1. People just struggle to stay ahead of the recession's fall-out. They have so little money to spend that is not committed to paying monthly bills that changes in their plans are marginal. They cannot fund major changes.

We do not see panic yet. We see hope that the Obama Administration's weekly new policies will work. If the earlier ones had any chance of working, why are new ones announced each week?

Investors want to believe that the Federal Reserve and the Treasury can extricate the economy from the broad disaster that Federal Reserve policy and Treasury policy created under Greenspan. They expect the Treasury's revolving door of experts from the Council on Foreign Relations to get it right this time. They take the official assurances at face value. There is no FAS 157 governing official pronouncements from Geithner or Summers or Bernanke. There is nothing that compels pundits to write down their statements at face value to something markedly less. There is no mark-to-market accounting for political pronouncements.

Soros says we will experience falling commercial property prices and rising general prices. If he believes this, then he has to be making an assumption: the present bailout plans of both the Treasury and the Federal Reserve will not reach the local banks and the local real estate markets. He is saying that Wall Street and Main Street are not in synch. Main street is where consumers meet sellers and work out deals. He is saying that Main Street's businesses will not be able to avoid consumers that refuse to buy.

Main Street today is where businesses that boomed under Greenspan now operate. That world is gone. Consumers will still spend money, but they will not spend it on the same products as before. Main Street's businesses that rely on discretionary spending to keep their doors open will not be able to survive.

Soros is saying what Ludwig von Mises and Austrian School economists have been saying for over nine decades. The issue is relative prices. The general price level can rise, but specific consumers, businesses, and sectors will not benefit. In short, the economy is not like the ebb and flow of the tides. All ships don't rise and fall together.

Donald Trump did fine when the Federal Reserve's real estate bubble was expanding. Investors thought he would make all those Atlantic City casinos keep them rich. They were wrong. Three of the casinos filed for Chapter 11 protection in February. The problems? Leverage. Recession. A change in taste by gamblers who were discretionary gamblers. They stopped gambling.

People who make money under one set of conditions lose money when these conditions change. Soros is predicting two seemingly rival sets of conditions: falling commercial real estate and rising prices. Those who are heavily invested in commercial real estate will take a hit before mass inflation arrives.

The recovery phase will bring monetary inflation: the multiplication of the monetary base. That will do the renters of busted businesses no good. It may bail out owners of these properties if they can keep the banks from foreclosing. It's a race against time.

CONCLUSION

The world needs capital, not more digits. The Treasury and the Federal Reserve can rearrange digits and interest rates. Investors and borrowers will follow the money. The planners can lure investors and consumers into one or another market by means of the flow of borrowed and newly created digits. But by undermining the information sent by prices, the digit-masters lure investors and buyers into debt traps. As surely as Donald Trump and his investors failed to adopt an exit strategy to deal with Bernanke's tight money policies, 2006–2007, so will investors and borrowers fail to adopt a survival strategy for the next wave of price inflation.

The destruction of capital through bad investing is the legacy of tax policies, monetary policies, and subsidy policies of government and its ally, the central bank. All over the world, this unholy alliance has destroyed capital. There is no good reason, in theory or practice, that indicates that these digit masters will get it right this time.

Donald Trump is smart. His bondholders are smart. Central bankers are smart. But they are not smarter that the assembled knowledge of a free market that is not being distorted by bureaucratic monetary policy. If the government would pay the salaries of every Federal Reserve employee, sending them all home and freezing current assets forever, the economy would become productive after a sharp, fearsome depression. That is not going to happen. The digital deception will go on.

Don't be deceived. The system is rigged against you.

Source: Market Oracle