Subprime may lead to $1-trillion worth losses: Soros

George Soros, Chairman, Soros Fund Management feels that it is only now, that US is entering into a recession, reports CNBC-TV18. The subprime crisis is likely to lead to losses worth nearly USD 1 trillion, he said. U.S has not yet seen the full effect of possible recession.

Soros believes that the willingness or fear to extend credit can create a boom or bust cycle. Credit default swaps have become a large business. Credit default swaps can be done on a thin margin, min cap & large volumes.

The current US administration does not recognise the magnitude of problem. The situation in US going to get worse before getting better, Soros said.

The inflation and recession trends restrict the ability of the authorities. 

Meanwhile, Simon Johnson, Chief Economist, IMF said, “In the US, the economic growth is nearly stalled against the backdrop of weak financial confidence. We expect the consumption to remain sluggish in the coming quarters due to deteriorating labour market conditions, slow growth in disposable incomes, high energy cost and tighter constraints in household borrowings.”