2010.10.0605:48:00UTC+00Soros Calls For More U.S. Stimulus Spending

There is a real danger that U.S. President Barack Obama's goal of trying to cut in half the country's large budget deficit by 2013 could wreck the U.S. recovery and more stimulus spending is needed to breathe life into domestic demand, renowned investor George Soros has said.

In a speech delivered at Columbia University on Tuesday, Soros said the Obama administration was caving in to pressure from Republicans to cut back on stimulus spending and target fiscal consolidation.

"I believe there is a strong case for further stimulus," Soros said. "To cut back on government spending at a time of large-scale unemployment would ignore all the lessons learned from the Great Depression."

While Soros advised the U.S. against further bloating its already substantial debt burden, he said the government could extend stimulus to the economy by investing in productive areas such as infrastructure and education.

"What stands in the way [of more stimulus] are misconceptions about budget deficits exploited for partisan and ideological purposes," he said. "There is a real danger that the premature pursuit of fiscal rectitude may wreck the recovery."

Soros' comments come amid fresh speculation that the world's advanced economies may be about to extend a new round of monetary easing after Japan loosened monetary conditions further on Tuesday.

The billionaire investor also hit out against Germany's austerity cuts, warning that the country's obsession with deficit reduction threatened to pull all of Europe into a deflationary spiral.

"Deficit reduction by a creditor country such as Germany is in direct contradiction of the lessons learnt from the Great Depression of the 1930s," Soros said. "When both creditor and debtor countries are reducing deficits at a time of high unemployment they set in motion a deflationary spiral in debtor countries."

Germany, the largest economy in Europe, has announced spending cuts to save 80 billion euros by 2014, as it seeks to bring its debt and deficit levels under the Maastricht limit.

With eurozone countries moving towards a coordinated plan of budget tightening at a time of feeble growth, Soros said the continent could slip into "a period of prolonged stagnation or worse," and that this will, in turn, generate discontent and social unrest.

"Even if budgetary targets were met, it is difficult to see how the weaker countries could regain their competitiveness and start growing again because, in the absence of exchange rate depreciation, they need to cut wages and prices, creating deflation," he said.

Billionaire philanthropist George Soros rose to global attention in the 1990s after he made a reported $1 billion speculating against the British pound.

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