When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold.
Interpretation
Low interest rates can lead to inflated asset prices, with gold being a prime example of such a bubble.
This quote by George Soros highlights the relationship between low interest rates and the creation of asset bubbles in the market. Specifically, he points out that when interest rates are low, investors are more likely to inflate the prices of various assets, including commodities like gold, which can lead to unsustainable growth and eventual market corrections.
In practice
Discussing market trends during an economic seminar.
The securitisation of mortgages added a new dimension of systemic risk. Financial engineers claimed they were reducing risks through geographic diversification: in fact they were increasing them by creating an agency problem. The agents were more interested in maximising fee income than in protecting the interests of bondholders. That is the verity that was ignored by regulators and market participants alike.
The collapse of the global marketplace would be a traumatic event with unimaginable consequences. Yet I find it easier to imagine than the continuation of the present regime.
Regulating and taxing marijuana would simultaneously save taxpayers billions of dollars in enforcement and incarceration costs, while providing many billions of dollars in revenue annually.
We are the most powerful nation on earth. No external power, no terrorist organization can defeat us. But we can defeat ourselves by getting caught in a quagmire.
My foundations support people in the country who care about an open society. It's their work that I'm supporting. So it's not me doing it. But I can empower them. I can support them, and I can help them.
The criminalization of marijuana did not prevent marijuana from becoming the most widely used illegal substance in the United States and many other countries. But it did result in extensive costs and negative consequences.
When I trade, I don't have an agency problem; I have my neck on the line. When a bank or banker trades, it's not his neck on the line.
Never, ever invest money that you will need prior to three to five years - minimum.
Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesnβt produce anything.
Banks are run by executives, and executives protect themselves, and that does not always mean that banks are going to behave rationally.
Banking is a very treacherous business because you don't realize it is risky until it is too late. It is like calm waters that deliver huge storms.
It's not a stretch to say the whole financial industry revolves around the compass point of the absolutely safe AAA rating. But the financial crisis happened because AAA ratings stopped being something that had to be earned and turned into something that could be paid for.
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