Soros still bent on using perpetual bonds
US stock market speculator George Soros has had another opinion piece published, this time in Finland, in which he repeatedly calls for the issuance of perpetual bonds.
Apparently, George Soros cannot let go of his proposal to introduce perpetual bonds as a means to resolve the economic difficulties caused by the coronavirus pandemic. The 90-year-old stock market speculator has floated the idea on multiple occasions last year. A few days ago he had an opinion piece published on the German Handelsblatt news site and, most recently, in a newspaper in Finland. Of course, the two articles have some overlapping notions and exhibit many similarities.
In the article published by the Helsingin Sanomat portal, Soros explains that the coronavirus has “punished” the economies of countries that have proved unable to keep the pandemic at bay. The article s author, presented as the head of Soros Fund Management and the Open Society Foundations (OSF), claims that the Covid-19 disease has caused a greater shock to the economy than the 2008 financial crisis, arguing that bold action is needed.
“Europe s response to the crisis was weak and the failure is due to an uneasy relationship between the EU institutions and the member states”, the stock market speculator wrote.
Soros believes that in order to revitalise the economy hit hard by the pandemic, the world needs perpetual bonds (or perpetual loans, to be more specific), which never have to be repaid, except for the annual interest rates accrued.
Although the idea may seem quite radical at first glance, Soros says perpetual bonds have in actuality been used for hundreds of years. He follows on with a brief history lesson, recalling that the UK had issued so-called “consols” back in 1752, adding that the country also used unlimited National War Bonds to finance the Napoleonic Wars. The United States issued consol bonds in 1870.
Soros argues that perpetual bonds should be issued now, when international interest rates cannot fall any further, suggesting their gradual introduction to allow financial markets to familiarise themselves with this new instrument.
In the current situation, the European Union cannot mobilise perpetual bonds instead of member states, the stock market speculator said.
The governments of EU member states should act now and the individual coutries should issue perpetual bonds to finance the fight against the coronavirus, he wrote.
The so-called “Frugal Five”, which in his definition includes Finland alongside the Netherlands, Austria, Sweden and Denmark, have more credibility in the capital markets than countries like Italy or Spain.
He also noted that the the European Central Bank (ECB) has already introduced perpetual bonds, as it has purchased massive quantities of government bonds. The ECB has no choice but to own this debt in perpetuity, he writes. When the bonds owned by the ECB are due, they will simply be replaced with newly issued government bonds, and this cycle will continue in the future.
According to George Soros, there is a significant difference between perpetual bonds issued by governments and perpetual debt created by the ECB. In his view, if member states issue perpetual bonds, they will benefit from low interest rates forever. On the other hand, if national governments issue new, ordinary bonds to replenish the ECB s stock of bonds coming due, they may have to pay higher interest rates.
The stock market speculator also argued that the issuance of perpetual bonds by member states is more democratic, whereas the ECB is an institution without any direct accountability towards the voters of any particular member state.