Economy, History
The Legend of George Soros and His Philosophy
A person that has destroyed the British economy to the bottom of the ground
In 1992, Britain was experiencing a massive economic depression. The interesting fact is that the mastermind of this economic depression was carried out by one person. His name is George Soros. Not only Britain, even Soros is also accused of being the figure behind the Southeast Asia economic collapse in 1997. How one person can destroy the economy of a country and a continent is my main motive for writing this article. Therefore, the word “legend” seemed to suit him. Let’s dive…
George Soros’s Background
Soros is a Hungarian-born American businessman and philanthropist. As of March 2021, he had a net worth of US$8.6 billion. Having donated more than $32 billion to the Open Society Foundations of which $15 billion have already been distributed, representing 64% of his original fortune. Forbes called him the “most generous giver” (in terms of percentage of net worth).
Soros was born in Budapest, Hungary in 1930 to a prosperous non-observant Jewish family, who, like many upper-middle class Hungarian Jews at the time, were uncomfortable with their roots. Soros has wryly described his home as a Jewish antisemitic home.
In 1947, Soros moved to England and became a student at the London School of Economics. While a student of the philosopher Karl Popper, Soros worked as a railway porter and as a waiter, and once received £40 from a Quaker charity. Soros would sometimes stand at Speakers’ Corner lecturing about the virtues of internationalism in Esperanto, which he had learned from his father. From the London School of Economics, Soros graduated as a Bachelor of Science in philosophy in 1951, and a Master of Science in philosophy in 1954.
Experiencing the Nazi dictator, having US$8.6 billion on his pocket, gaining knowledge from a great teacher like Karl Popper, and a Jews, no wonder if this dude is a savage.
Supply and Demand
If Cristiano Ronaldo is the God of football, Muhammad Ali is the God of boxing, then, George Soros is the God of trader. In the 1990s, Soros won a lot in a relatively short time. He won a lot in 1992 against the Bank of England, and in 1997 against the Southeast Asia economy.
Soros is a currency speculator. The purpose of speculators here is not speculators such as guessing the opponent’s card when playing poker or guessing which country is gonna win the Qatar World Cup in 2022. Soros is a speculator who uses economic analysis.
Speaking about currencies such as dollars, yuan, rupiah, pounds, and so on, they are all fiat money in the sense of currencies that do not have any collateral. Prior to 1970, currency was minted with a gold guarantee capital. All fiat money is guaranteed to be exchanged for gold at a fixed rate. However, after 1970, all currency turned to fiat money. Starting from that, if there is no guarantee, then what makes the British currency stronger than the Indonesian currency, for example. Yup, it is supply and demand.
The more people who need pounds (to buy British products for example), the stronger the British currency will be compared to other currencies. The number of local products that are sold, even exports to foreign countries, can strengthen the value of the country’s currency.
Policies that Destroyed The British Economy
In 1992, Soros saw a policy error made by Sir John Major (British Prime Minister). At that time, the British economy was in recession, which means that the economy was not as excited as before. Normally, when a country’s economy is in recession, the country’s Central Bank should lower interest rates. If interest rates decrease, it means that money loans are not expensive because the interest rates are low. If money loans are cheap, more and more people will borrow money from banks. The more people who borrow money, it means that the circulation of money in society is also getting more and more correlated with money. The problem occurred when John Major didn’t want to lower interest rates. British interest rates at that time remained high even though Britain was in recession.
Why did John Major carry out such a policy? The reason is because in 1992, he wanted the British to join the ERM (exchange rate mechanism). ERM is a pre-euro system. At that time, the euro currency did not exist (only existed in 1999). ERM is a system where European currencies are exchanged at a fixed rate. For example, 2 German Marks are equivalent to 1 Pounds. It means that this value must be maintained. It cannot be strengthened or weakened -with ERM, all currencies have a fixed value.
How do you make a fixed rate when all currencies are determined by supply and demand? Government policy. If a country has joined the ERM, then that country must keep its currency constant — it can’t go up or down. For example the British government, when it had to manipulate the market. When the pound strengthens, the government must throw away a lot of pounds so that the supply is plentiful and the price goes down so that the pound remains stable, vice versa.
Because John Major joined ERM, it was the UK’s obligation to keep the value of its pound currency stable. If the pound goes down, the UK could go bankrupt because it sacrifices its foreign exchange reserves to keep the pound stable. The problem got worse at that time, where Britain was in recession. When there is a recession, the government should help the people by lowering interest rates. However, if the British government lowers interest rates, it will weaken the currency, which makes it easier to get pounds and the supply of pounds will increase which will also weaken the value of the pounds.
At that time, the situation in Britain went awry. If the British lower interest rates, the economy will improve but the currency will decrease which means foreign exchange reserves will burn. But, if they don’t lower interest rates, the currency will be stable but the economy will get worse. Thus, John Major made the wrong decision to join the ERM just for the sake of prestige to keep the pounds looking strong even though the economy was in recession.
Give a Hole to Soros and Let The Magic Happen
Soros saw a hole in British policy at the time. He predicts that in the end, the British will be destroyed. After seeing this, Soros then speculated and bet that the pound would be crushed. How is Soros going? Most people, if they borrow money, they will use it for business purposes, buying a house, daily needs, and so on. Soros didn’t do that. Soros exchanged all his pounds into German Marks (German currency).
“You borrow pounds, and you sell this pounds that you borrowed. And then you buyback pounds when the loan expires.” — George Soros
Let’s assume at that time 1 German marks = 2 pounds. Soros exchanged 1 billion pounds to German marks, which is 500 millions pounds. Why did Soros exchange pounds for German marks? This was because the German marks currency was more stable, where Germany’s economic condition was much better than the British at that time. Because Soros bet that the British currency would fall, then when the British currency was completely destroyed, he would exchange his German marks back into pounds. At first he exchanged 1 German marks = 2 pounds, to 1 German marks = 4 pounds.
The Black Wednesday
Everyone can speculate, but not everyone can move the market. I can probably speculate that the price of ethereum will hit $1,000, but I can’t make it happen quickly. In contrast to Soros who incidentally is a wall street trader legend, he is so big he can even manipulate the market which is marked by his actions to destroy the British currency faster. How did Soros do it?
It happened when Soros spontaneously exchanged his British pounds to German marks and it was unexpected by most people. He dumped all his pounds into German marks, so that many people in the market asked “why are so many pounds thrown away? Are the pounds really going to be destroyed?” So many pounds were wasted that day. Once the public knows that the one who threw it away was George Soros, the legendary trader, then they will follow what Soros did.
“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.” — George Soros
I imagine if Soros having a cigarette and a cup of tea in his garden in the morning of September 16, 1992, and saying “you didn’t see that coming?” like quicksilver from Marvel does. How savage that is…
George Soros’s Philosophy
Soros admitted that he did not have much knowledge about all kinds of financial events that occur in the world. He only clings to a fact that he calls cannot be explained by the scientific approach to economics that has existed so far.
In a book entitled “The New Paradigm of Financial Market” which he wrote himself, he admits that he enjoys exploring the conditions that exist in this world on the basis of philosophy. One of the philosophies that he adheres to is the ideas of Karl Popper listed in the book “The Open Society and its Enemies”.
Soros was amazed by Popper’s ideas which said that the Nazi Germany and Communist movements had the same tendencies, where these two movements each claimed to be carriers of the truth. In fact, these two notions are biased and distorted behavior from what actually happened.
Popper’s views then inspired Soros in his personal life. He considers, scientific theories are not always valid. Science is not always able to verify all the events that exist in this world. Science, he continued, is just a collection of hypotheses that could one day become the subject of fallacies of thought.
From his love of philosophy, he later popularized the term reflexivity theory, namely the assumption that market participants do not move based on reality, but their perception of reality itself. In return, these actions will actually affect the reality that is happening. This happened as in the case of the subprime mortgage during the 2008 economic crisis.
Conclusion
What Soros did was legal and did not violate the law. He does speculation based on facts, economic analysis and his intuition. However, if we look at it from a moral perspective, what Soros did was wrong. When the currency weakens, many businesses go bankrupt and many people are fired. Then, poverty and hunger are increased.
Soros is a true capitalist. He did not think about the misery of others as a result of his actions. His God is profit, where he will justify any means in order to reap the greatest possible profit.
What I want to convey here is how every policy must have consequences and how an “artist” seizes the momentum. That’s what Soros did. His brain is beyond valuation, a walking work of art, vintage, beyond forgery. A legendary trader armed with Karl Popper’s philosophical guidelines, it’s no wonder he became a real devil.
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