Transcription
In the last 2 years, you've been blamed for the financial collapse of Thailand, Malaysia, Indonesia, Japan, and Russia.
Are you that powerful?
No. I think there's a great misunderstanding. I've been playing blame for everything. I am basically there to make money. I cannot and do not look at the social consequences of what I do.
In the winter of 1997, a trader named George Soros walked into a bank and he signed a mathematical death warrant against Thailand. Back then, Thailand was an Asian miracle which transformed from a slum to a land of skyscrapers and superhighways.
The 1990s was the golden era of the Thai economy. The economy was expanding at such a rapid pace and it transformed from an agrarian low-income country to a manufacturing powerhouse. For 10 years, Thailand was growing at a staggering pace where they tripled their income and became a legend in the Asian market and their stock market index saw a staggering 800% growth in the last 10 years before that.
But George Soros and his friends found a loophole, a loophole so bad that they crashed the entire economy of Thailand. And guess what? In return, they made $2 billion. Yes, they made $2 billion without building a factory, without building a product, and without hiring a single worker. This is the tale of the worst economic crisis in Asia, where a few rich men crippled the economy of Thailand and made billions of dollars and changed the destiny of a nation for generations.
Mr. Soros's hedge fund was involved in a $4 billion bet that the currency would fall sharply, resulting in extensive layoffs, unemployment rates spike, investors watch their investments vanish, and countless individuals find themselves plunged into poverty. The question is, what was George's strategy that ruined the economy of Thailand? How did these financial wizards mint billions by crashing Thailand's economy? And where did Thailand make a mistake?
The Thai economy is expected to slow in the second half of 2025.
I cannot and do not look at the social consequences of what I do.
Thailand received a 36% tax on all imported goods into the US.
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This is a story that dates back to the 1970s. During this time, Japan had become a manufacturing superpower and they were practically the undisputed king of innovation. In fact, Japan was so fast that it was about to beat the US to become the largest economy in the world. The Japanese now enjoy the highest standard of living in Asia. Japan had established itself as a global manufacturing powerhouse.
The economy was growing so fast that it looked like it was about to overtake the US as the world's biggest.
But while Japan was celebrating, a death warrant was being drafted in a luxury hotel in New York. In 1985, the United States made Japan sign the Plaza Accord. And as we all know from our Japanese economic case study, the Japanese yen in just two years went from 240 yen to the dollar to just 120 yen to the dollar. So suddenly labor costs in Japan doubled in dollar value. And a $10,000 Toyota car now had to be sold for $20,000 in the US just to make the same profits in yen. This is when Honda and Sony realized that this was a death sentence. If they didn't move their manufacturing to a cheaper country and control their labor costs, they would have gone bankrupt. So, the Japanese companies found four countries with ultra cheap labor. They moved semiconductors to Malaysia, textiles to Indonesia, and electronics to Philippines and Thailand. By the way, they didn't come to India because India back then was a terrible place to do business. And had we opened our economy in the 1980s instead of the 1990s, India would have been a crazy place. Anyways, look what we missed.
Thailand in the 1980s was a poor country with slums and farms. All they knew was to export rice. That's it. But as soon as the Japanese companies moved into Thailand, like I said, in just 10 years, Thailand transformed from slums and canals to a land of skyscrapers and superhighways. Their income tripled. Their index grew by 800% and Thailand became a legend in Asia. And they went from $38 billion in GDP in 1985 to $180 billion in 1996.
But just when everyone thought Thailand was the next Japan, George Soros and some powerful hedge funds decided to play a game with Thailand. A game so terrifying that they crippled a country and made billions of dollars.
East Asia's fiercely competitive tiger economies starting to lose their fangs. Export growth has slowed sharply this year.
Reports in a Thai publication said Mr. Soros's hedge fund was involved in a $4 billion bet that the currency would fall sharply.
The question is, how can one man and his rich friends cripple the entire country? And how do you make a billion dollars when an economy dies? Well, as it turns out, George Soros found a genius loophole in the Thai economy. As it turns out, the central bank of Thailand made an innocent promise. They said no matter what happens in the market, every time you bring us a dollar, we will give you 25 Baht and every time you give us 25 Baht, we will give you $1. So they promised the market that the Thai currency would be fixed at 25 Baht to the dollar and even if the market rate for a dollar rises to 50 Baht, the Thai government promised to sell the dollar at 25 Thai. This is called the fixed currency rate.
Now if you look at India, the Reserve Bank of India follows a completely different philosophy. They say we don't set the price, the market sets the price. So if panic starts when the price of a dollar is 80 rupees, the price will automatically change to 81, then 82 and then 83. Because RBI believes that as the dollar gets more expensive, automatically fewer people will be able to afford it and eventually the buying may stop, maybe at 90 rupees or 92 rupees to the dollar.
But when Thailand guaranteed a fixed currency rate, the CEO of Toyota was extremely happy. Why? Because he did not have to worry about currency depreciation like investors are worrying about currency depreciation in India. But this is where George Soros found a billion dollar opportunity.
So here's what George did. George signed something called a forward currency contract. Let's understand this concept with simple hypothetical numbers and you will see some action film coming out of this story. In this contract, Soros promised to hand over 25 billion Baht in 6 months. In exchange, the bank promised to give him $1 billion US dollars and this was based on a fixed rate of 25 is to 1. So 25 Baht to the dollar. Now this commercial bank wanted to be safe. So what did they do? They went and sold 25 billion Baht to the central bank of Thailand which innocently gave them $1 billion. So if you see now, George Soros was safe and this commercial bank was also safe because they had $1 billion to give to George. But when multiple banks started selling the Thai Baht to the central bank of Thailand, the central bank of Thailand started running out of dollars. In fact, on 2nd of July 1997, the central bank of Thailand was in such a terrible position that they had paid $23.4 billion to these commercial banks. And you know how much they had? They only had $2.8 billion left. You know why this was crazy? Because back then Thailand needed $4 billion just to pay for oil. So in just a few weeks, Thailand was about to go bankrupt. And that is when the central government realized that they were about to go bankrupt because of their innocent promise. So on 2nd of July 1997, the bank of Thailand announced that they can no longer give out dollars and the currency will be determined by market forces alone. And suddenly there was panic all across the market. And due to this panic, the value of Baht crashed from 25 all the way to 50 Baht to the dollar.
So do you realize within a few days the value of the currency became half and after 6 months George Soros came back into the picture. He goes to the open market, pays $500 million to buy 25 billion Baht at the new cheap rate of 50 Baht to the dollar. Then he takes that pile of 25 billion Baht back to the bank to fulfill his contract. So he hands over this 25 billion Baht and the bank hands him $1 billion US as promised 6 months ago. So do you realize he practically invested $500 million and got $1 billion back? This is how the Quantum Fund leveraged the innocent Thai promise to crash the Thai economy to make a billion.
Now as much as this seems like a capitalistic magic trick, the reality on the ground was a horror story. Suddenly, oil prices in Thailand doubled. Real estate companies went bankrupt. And in just 1 year, poverty approximately increased from 35% to 45%. In fact, even suicide rates touched all-time high in 1999.
In 1997, the Asian crisis reaches a boiling point. As the country's currency and stock market continued to fall, major currencies in the region like the Thai Baht face significant devaluation. Many businesses go bankrupt, resulting in extensive layoffs. Unemployment rates spike and countless individuals find themselves plunged into poverty. In fact, the most famous car is the Saton Unique Tower, a 49-story luxury skyscraper that was 80% finished and then abandoned due to the crisis. Even today, it stands as a rotting, haunted monument to this crisis. And you know what? After hitting $180 billion in GDP, Thailand took another 9 to 10 years to reach that $180 billion GDP mark. That is how one man and his rich friends crashed an economy and walked away with billions of dollars.
Now even though Thailand tried its best to recover with tourism and manufacturing, both are stagnating today. Look at this. In 2019, Thailand welcomed 40 million tourists, it was a money printing machine accounting for nearly 20% of GDP. But even after 5 years, in 2024, they struggled to invite 35 million tourists. At the same time, if you look at other southeastern countries, in 2009, Vietnam's electronics exports were less than $5 billion. But by 2020, they had skyrocketed to over hundred billion. Meanwhile, Thailand's high-tech exports have stagnated. On top of that, Thailand is also facing a demographic time bomb. In 2024, the number of babies born in Thailand hit a 70-year low. More than 20% of its population is now over 60, and it is becoming a super-aged society like Japan. So the question is, who's going to work in the factories of Thailand? Who's going to pay taxes to support the elderly?
You know, the 1997 crisis changed Thailand's DNA. Because of the trauma of 1997, the Thai government became paranoid about stability. They started holding so much foreign reserves that today they have over $220 billion in foreign reserves. And this was to ensure that another George Soros can never hurt them. But you know what? By playing it safe and protecting the banks, they forgot to invest in education and technology. So, Thailand survived the crash, but they're walking with a limp. They are now an old man in a young neighborhood. While Vietnam is sprinting ahead, Thailand is walking slowly, carrying the heavy baggage of debt and fear left over from the fateful day of July 1997. That is how a financial wizard in New York didn't just crash an economy for a few years. He changed the destiny of a nation for generations.
And this story has three very, very important lessons for India and the world.
Lesson number one, trying to control a free market is like trying to hold a pile of sand with tight palms. The harder you squeeze to keep the shape, the faster it slips through your fingers. In this case, while RBI does not tinker with the market, the central bank of Thailand tried to control the currency, and that is what led their economic miracle slip away.
Lesson number two, cheap labor can only get you so far. In this case, while Thailand banned on just cheap labor, South Korea moved up the economic ladder to invest in R&D and turned from workers to engineers to architects to designers from one generation to the other. And I just hope India doesn't get stuck here because our R&D spends are practically a joke.
And lastly, we all need to remember that getting over trauma is not just important for a person, it is also important for a nation. India's 200-year British trauma didn't let us open up our economy for 44 years, while China, Singapore, South Korea and Japan developed. Similarly, Thailand never got over its forex trauma because of which they didn't invest enough in their own people. So, Thailand is an old man today who saved all his money but has no children to take care of him. And I just hope India doesn't make the same mistake because even today our ease of doing business has a long, long, long way to go and that is because of red tape.
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