Soros blames the GOP and China for holding back the economy

Financier George Soros blamed Republicans and China for holding back necessary measures to boost the struggling economy.

Soros said Saturday that Republicans' focus on deficits has driven the current political debate, adding that it's “becoming eerily reminiscent to the debate of the 1930s," when the Hoover administration pushed spending cuts to reduce the deficit instead of the stimulus spending favored by John Maynard Keynes to combat the Great Depression.

Soros noted that conservatives led by German Chancellor Angela Merkel and the new Conservative-led British government had come out on top at the latest G-20 meeting of developed countries, getting the United States and others to sign on to a pledge to cut the deficit in half by 2013.

“I’m afraid that that is the wrong consensus, and it threatens to push the global economy into a much longer lasting stagnation than is necessary, because the imbalance that is the root cause of the financial crisis has not been removed,” said Soros, a prominent backer of liberal Democratic causes. “The United States is still consuming too much, China is consuming too little.”

Soros, during a panel of economic experts at the annual International Monetary Fund meetings in Washington, singled out the trade imbalance between the United States and China as one major cause of economic struggles. More stimulus in the United States would help remedy that imbalance by driving up demand among Americans, he said. Soros favored spending as stimulus instead of the measures to loosen up the money supply now being considered by the Fed.

“Instead of that we are driven to quantitative easing because the political debate has been marked — driven by Republicans, who are arguing for balancing the budget and no more stimulus,” he said. “Stimulus has become a dirty word in the political arena. And so politics are dictating the policy.”

He added that there’s “really some fundamental misunderstanding of how financial markets operate.”

International finance officials this weekend have been discussing how to move forward on the economy, which the IMF this week projected to grow slower in 2011 than it had expected back in July. The international group cut its estimate of U.S. economic growth for next year 2.9 percent to 2.3 percent. The estimate for global growth was revised downward from 4.3 percent to 4.2 percent.

Soros earlier on Saturday took aim at China’s currency policy, which pegs the yuan to the dollar instead of allowing it to appreciate. He told the BBC that China had a "lopsided" currency system that resulted in a "chronic trade surplus."

Soros’s attacks on Republicans and China come as Democrats have pushed for legislation on both fronts ahead of the midterms. President Obama has called for more spending on infrastructure and tax breaks for small businesses, while House Democrats pushed through a bill that could lead to tariffs on Chinese imports if Beijing didn’t allow the yuan to rise in value.