By Maria Bartiromo
Most of the ink that has been spilled about George Soros lately centers on the firestorm over a New York Times ad attacking General David Petraeus, the U.S. commander in Iraq. The ad was paid for by MoveOn.org, a liberal group to which Soros donated millions during the 2004 elections, and everyone from Investor's Business Daily to Fox News (NWS ) has been fingering him as the man behind the message, a role that Soros denies. But while you can argue with Soros' politics, it's difficult to dispute the fact that the 77-year-old hedge-fund billionaire remains a canny investor with a surprisingly candid global view.
A lot of people feel that the housing crisis will lead America into recession. Do you see that happening?
I rate the chances of a recession higher than the officials [do].
How much oomph has the U.S. housing market taken out of global economic strength—which has been the redeeming factor in the whole economic picture, right?
Yes. I think that is going to continue and counterbalance the weakness in the U.S. So I don't expect a worldwide recession, but a rebalancing between the U.S. and the rest of the world.
So the strength around the world continues?
I think there's a very good chance, and also that sovereign wealth funds [entities that invest on behalf of a nation] will be investing in emerging markets, particularly India, Latin America, and Africa, as much as those markets can absorb those investments. So you have an investment boom going on in those countries.
Even with the sovereign funds becoming more aggressive investors—Abu Dhabi buying into the Carlyle Group, Qatar buying into big Western businesses—some people worry that Middle Eastern money is being turned away. Is America too protectionist about such investments?
There's a tremendous transfer of wealth under way. Part of it is going to the oil-rich countries and part to China. But there aren't enough financial instruments available to those countries to put their surplus in. So they have set up sovereign wealth funds. Unless we allow those funds to invest, the system is going to break down. These wealth funds are opaque, and they need to become transparent. But once they meet the rules of disclosure, they should be allowed to invest for the system...to survive.
A lot of U.S. senators and congressmen say: "Look, this is a national security issue." They want to investigate every time they see Middle Eastern money flowing in.
Yes, I think this is one of the dangers—that as we head toward a recession, we impose restrictions that lead to a breakdown of the system. This is what happened in the 1930s. In other words, globalization is not irreversible. In the past, it has been reversed several times.
Some of those same sovereign funds are lowering their exposure to the dollar. Qatar says it wants to get out of dollar-denominated assets. Is there any reason to believe that the dollar is going to get stronger any time soon?
No. We have had a housing bubble that sustained the economy for the last few years. The bubble has now burst. This has to affect consumer spending. And that has to lead to lower interest rates and a flight from the dollar.
What are the implications of all that for the U.S. economy?
It will moderate the economic decline because it will lead to an improvement in our trade products. So it's the correction of an imbalance that has been growing for the last few decades.
Do you worry that the uneasiness in markets that we've been seeing will cause more trouble for hedge funds?
It has already begun to create a shakeout. I don't think the hedge fund industry is going away, but it will undergo a correction. Both hedge funds and private equities will diminish in importance.
How concerned are you about the climate issue?
I think we have to stop the increased use of coal if we want to bring climate change under control, and find a way to extract carbon from coal—replace dirty coal with clean coal. Without that, and a price system that makes that possible, global warming is terminal.
Should America be worried about the incredible growth of China?
One major political and economic challenge facing us is how to integrate China into the world system without conflict, because the rise of new leadership there can easily lead to conflict.
Do you think it's wise to invest in Russia?
It's very risky, but at the same time Russia is doing very well as an economy. So it does offer opportunities.
Is Russia a friend or a foe to the U.S.?
You cannot count on Russia as a friend. For instance, Russia would benefit from greater conflict in the Middle East. Russia has sold a missile defense system to Iran and at the same time launched a satellite for Israel for the express purpose of monitoring nuclear developments in Iran. So that speaks for itself.
Do you agree with Secretary of State Condoleezza Rice and President Bush that we should not engage in any dialogue with Iran until it puts aside its nuclear ambitions?
No. I think we need to engage with Iran.... There will be political change in Iran in the next two years, unless they manage to provoke an attack, which would then reinforce [President Mahmoud] Ahmadinejad. And that is the real danger—that with powerful political forces at work on both sides there will be military conflict within the next two years.
Do you have a favorite Presidential candidate?
My favorite is [Barack] Obama, but I will be happy to support Hillary [Clinton] if she is the candidate, or [John] Edwards.
As Alan Greenspan has pointed out, federal spending under President Bush has soared, and that has alienated many economic conservatives. But reining in spending is not exactly a Democratic strong suit, either. Wouldn't the Dems just get America into a deeper fiscal hole?
[Bill] Clinton was one of the most fiscally responsible Presidents in history and left behind a surplus, which the Republicans squandered.
Fox News and others are calling you the man behind MoveOn.org. How much have you given to MoveOn during this election cycle, and what influence do you exert over MoveOn and its message?
I have absolutely no influence over their decisions. I had nothing to do with the [Petraeus] ad. But I'm a convenient target. [A spokesman interjected that Soros has not given any money to MoveOn since 2004. He did not disagree.]
Did you think that the ad questioning the integrity of General Petraeus was out of line?
It's in line with other similar ads and is basically no worse than many ads from the right wing.
Maria Bartiromo is the anchor of CNBC's Closing Bell.