Investor George Soros says the world could be heading towards a financial crisis similar to the 2008 GFC

BILLIONAIRE investor George Soros has issued a warning that we could be about to repeat the global financial crisis that caused havoc in 2008.

THE world could be headed towards a new global financial crisis similar to that which decimated markets in 2008, says billionaire investor George Soros.

Speaking at an economic forum in Sri Lanka Thursday, the 85-year-old drew similarities between the current economic environment and the financial crash of 2008.

“When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008,” he said.

“Unfortunately China has a major adjustment problem and it has a lot of choices and it can actually transfer to the rest of the world its own problems by devaluing its currency and that is what China is doing,” Soros said of the world’s second largest economy.

His speech came as world markets tumbled and oil prices reached new lows after China suspended its stock market when shares fell more than seven per cent for the second time this week.

“We are facing a very serious transitional problem which is quite recent and it is, I would say, (a situation) that amounts to a crisis, and we are at the beginning of that,” Soros said.

In the event which was attended by Sri Lankan President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe, Soros said a weaker Chinese yuan was “inflicting deflationary pressures” on the rest of the world.

“I agree with Soros to the extent that China’s economy is creating a ripple effect throughout the global economy,” said Paul Mazzola. “But I’m not as pessimistic as him to think it will cause another global financial crisis.”

Speaking to news.com.au the former banker and associate head of the School of Finance at Wollongong University said he shared Soros’ belief that the artificial value of the yuan was “the source of the world’s global instability” but stopped short of saying it was time to panic.

Let’s get China right and it will go a long way to fixing global markets, he said.

Hungarian-born US magnate and philanthropist George Soros attends an economic forum in Colombo on January 7, 2016. AFP/lakruwan wanniarachchi.

COULD A REPEAT OF 2008 HAPPEN?

The man with a net worth of $US27.3 billion certainly knows a little something about financial markets, but it’s not the first time George Soros has made economic doomsday predictions by suggesting a repeat of 2008.

During a panel discussion in Washington in September 2011, he said the Greece-born European debt crunch was “more serious than the crisis of 2008.”

But as the scars of the global financial crisis begin to fade, the release of a new film will likely open up old wounds — at least in terms of public debate.

The film adaptation of Michael Lewis’ The Big Short was released on December 23 in the US and is due to hit Australian cinemas in early 2016. The film follows the real life journey of a handful of different traders who foresaw the collapse of the American subprime mortgage market and the subsequent banking crisis, and were able to successfully bet on it happening.

The film contains the suggestion that some of the negligent activities on Wall Street which precipitated the global financial crisis are still going on today.

However Paul Mazzola said the “learning experience” of the subprime mortgage disaster has brought about reforms in the US investment banking system and global financial markets, including Australia, which have safeguarded from future calamities.

“We’re better off now than we were before,” he said. “The structural reforms we’ve seen have kind of insulated the world from future disasters.”

But the central character in Lewis’ book, hedge fund manager Michael Burry, believes the state of the world economy could result in another catastrophe.

“We are right back at it: trying to stimulate growth through easy money. It hasn’t worked,” he told New York magazine in the wake of the film’s US release.

“It seems the world is headed toward negative real interest rates on a global scale. This is toxic. Interest rates are used to price risk, and so in the current environment, the risk-pricing mechanism is broken. That is not healthy for an economy,” he said.

Michael Lewis has also lamented the lack of significant change on Wall Street in the wake of the GFC.

“I regarded this crisis at bottom as a problem of incentives. People behaved badly because they were incentivised to behave badly, and the incentives haven’t really changed that much,” he said.

While Paul Mazzola understands the desire for dramatic regulatory change, he says it can be tough to achieve.

“There has been a lot of learning, but the action has been slow,” he said.

The 2008 crisis was not only fuelled by shoddy lending practices, but also by an unrelenting public desire for “cheap money” — something which Mazzola says has been largely rectified in the wake of 2008.

“The consumer world is acting a little bit more sensibly, ie: we’re not going as crazy on our credit cards,” he said.

George Soros on Thursday warned of a financial crisis not of the same nature of 2008, but perhaps the same significance.

The performance of Chinese markets in this week has plenty of investors spooked. Shares on major exchanges fell a sixth straight day Friday and crude oil prices touched multi-year lows as investors fretted over China’s economy and its ability to stabilise its stock market.

In a move that deepened concerns the People’s Bank of China set the yuan midpoint rate lower for an eighth consecutive day.

But despite the woeful week in Chinese markets, the troubling artificial value of the yuan and the warning from George Soros of a potential crisis in the making, comparisons to 2008 crisis seem far fetched.

“Let’s not overreact to the stock market just yet,” Mazzola said.