ZAKARIA: George Soros is the 14th wealthiest American, according to "Forbes Magazine." He's one of the most successful investors of all times who has spent billions of his dollars to promote democracy around the world, to promote what he calls open societies.
He was a big supporter of then Senator Obama in the 2008 elections. He has been relatively quiet on that subject in recent months. So who better to talk about the democracy movements in the Middle East, North Africa, about U.S. politics, the president's new budget and much more?
Welcome back, George.
GEORGE SOROS, FOUNDER, THE OPEN SOCIETY INSTITUTE: My pleasure.
ZAKARIA: Do you think what is going on in -- in the Arab world right now reminds you of 1989, when you were very active in helping those countries move to freedom?
SOROS: It is very similar. It's -- it's a historic event, at least equal in importance to what happened then. And it -- it really is a spontaneous desire of people living in closed societies to shake off the dictatorship and -- and corrupt regimes, and to move towards democracy.
The big difference between 1989 and now is that there it was a -- the Soviet dictatorship that was collapsing. Here, its our allies that -- that are changing. And now we have to actually regain the confidence and alliance of the people in these countries.
ZAKARIA: In the -- in Eastern Europe, the people were for us because we had opposed those regimes.
SOROS: That's right.
ZAKARIA: Here, we have supported these regimes, so the people look at us, at least with some suspicious.
SOROS: Yes. But, I must say that in this respect, President Obama did an -- an outstanding job. It's -- it's not sufficiently appreciated. Really, what a big difference it was that he was -- he is our president at this time.
Just imagine if Bush and Cheney would have been in charge. I don't think you would have had a peaceful revolution in Egypt.
ZAKARIA: Even though they were for democracy and Bush talked about the freedom agenda?
SOROS: Yes, it was -- but, in effect, they were allies of -- of these regimes, and the President Obama sees it in terms of people asserting their right to be more in charge of the -- of the government.
ZAKARIA: You say revolutions usually start with enthusiasm but end in tears.
SOROS: That's right.
ZAKARIA: So -- and there are many cases where these things start of well and then the military reasserts control, or there's some kind of total dysfunction.
ZAKARIA: What are lessons you've learned about how to -- how to make sure that Egypt goes right rather than goes wrong? SOROS: Yes. Well, what I learned in 1989 and '91, when I was very involved there, is that the transition from a closed society to an open society is not an easy one because it's -- it's a step up, because there's a lot more involved in democracy than just overthrowing a dictator. You have to build institutions. That takes time, and actually, effort. And these countries will need a lot of support for the revolution actually to succeed.
ZAKARIA: In Egypt, what people look at is the Muslim Brotherhood, a -- a group that -whether or not it's -- it's peaceful or not, has pretty extreme views, and views that are often not compatible with an open society, with a democratic society.
SOROS: You see, this is what I find very heartening, because I also sort of accepted this view that it's either Mubarak or the Muslim Brotherhood or -- or al Qaeda. It turns out that there is, even in Egypt, a sufficiently engaged middle class, particularly young people who actually want to be democratic and are not beholden to an -- an Islamic political movement.
So it's -- the reality actually turns out to be much more promising than I expected.
ZAKARIA: When you look around at the regimes, the other regimes, there seem to be protests and discontent everywhere. The one that is most interesting is Iran.
SOROS: Of course. And I'm convinced that the -- that the regime will not survive. It was already highly vulnerable because the revolution got further and further extreme.
The -- the -- actually, the mullahs, the Islamic element, was already disenfranchised, and it was just the Revolutionary Guard, and then even within the Revolutionary Guard an increasingly narrow group of people who are maintaining themselves in power through real oppression and despotism, killing people through judicial processes. And the large majority of people resent them, try to move up. And because they were oppressed, the -- this movement was repressed.
ZAKARIA: Could we do something to -- to further this strength in Iran?
SOROS: Yes. I think Obama did actually there also a very good job by refusing to get involved and to be instigating regime change. This -- this attempt to impose a regime change from the outside is counterproductive, because then the regime can accuse its opponents as being in the pay of a -- of a foreign power, right?
SOROS: Here, Obama scrupulously avoided it. He was criticized for it, that he wasn't pro-democracy, pushing it. Now, I think now he's beginning to push, and -- and rightly so. And, as I said, the situation there could get very, very ugly.
I think that the -- the opposition leaders could easily be killed through a false judicial process because the regime is fighting for its survival, because they know that they've committed such crimes that it's either them or the people. So they will put up a lot more resistance, but I don't think that they'll be able to succeed because this is something that -- people behave very differently than in normal times. They actually are willing to sacrifice their lives for a common cause.
So it's -- and the -- the impossible, what seems to be impossible not only becomes possible but it actually happens. So I'd -- I would like to bet that the Iranian regime will not be there in a year's time.
ZAKARIA: Wow. If the Iranian regime collapses, this will be a real revolution in the Middle East. I mean, you're -- you are imagining a period of great instability.
SOROS: Yes. Well, look, in -- in '89, '91, the Soviet Union collapsed. It was a major change in geopolitics. The least you can expect for -- is for Iran to collapse in this one, for it to be equally significant. In other words, this game of geopolitics is not totally fixed, because what goes on inside states has a lot of influence on how those states behave.
So Iran, I think, will almost inevitably change its -- its character, and that will change the landscape.
ZAKARIA: When we come back, more with George Soros. We're going to ask him about President Obama's budget, the U.S. economy, how to creates jobs in this country.
SOROS: President Obama has lost control of the agenda. The agenda is now in the hands of the Republican Party.
ZAKARIA: And we are back with George Soros to talk about the American economy and what to do about it.
Where do you think the U.S. economy is right now? Is the budget that President Obama submitted the right way forward? Are the Republican critiques of it correct? Where do you stand?
SOROS: Well, President Obama has lost control of the agenda. The agenda is now in the hands of the Republican Party, and they are going to pursue a very strong effort to cut services by refusing to have any tax increases, by forcing the extension of the Obama tax cuts also for the top one or two percent. You have built in a budget deficit, therefore, you've got to cut services, and they'll oppose any kind of additional new -- new taxes.
I think this agenda will be successful, but it will be pursued, I think, to -- to an extent where it's more directed at cutting services and achieving the ideological purposes of the Republicans, rather than to get the economy going. So I -- I think this will have a negative effect on the economy.
ZAKARIA: Do you think overall, Obama has handled the economy well?
SOROS: No. No. I've been critical of it, and I think that he made one major error. He had to bailout the banking system because without it we would be in a depression. But the way he did it was the wrong way, because he should have injected capital where it was missing. There was a hole in the equity, and he should have provided equity, and instead of nationalizing the -- the liabilities of the banks, but not nationalizing the banks.
ZAKARIA: In the case of Britain, you said that the British government, which is pursuing a policy of cutting spending, though they -- they have agreed to some tax increases, but you said that this whole policy, because it is taking money out of the economy, the government would spend less, is -- is dangerous because it might tip the economy and Britain back into a recession.
SOROS: That's correct.
ZAKARIA: Do you think there's a similar danger here if the Republican Party would have pushed the spending cuts through -- the economy is still pretty fragile, at least --
ZAKARIA: -- on the employment side.
SOROS: Yes. And doing this at a time when private demand is not strong enough, when investment by businesses is not strong enough to take up the slack, it creates a slack. So unemployment, instead of coming down, is likely to remain pretty high. And to have these -- these resources permanently unemployed is basically very harmful to the economy.
ZAKARIA: Now, you know what the Republicans will say. They say that if we don't do this, we will face a crisis because we are borrowing all this money and the bond market wouldn't let us the money.
Now, you are maybe the world's leader expert on this subject because you -- you have literally accumulated a fortune of tens of billions of dollars figuring out when bond markets will -- will support governments and when they wouldn't. When you look at the U.S. government right now, do you think it is in danger of facing a crisis where it wouldn't be able to borrow any more, that the bond market will -- will punish it?
SOROS: Yes. That's more or less in -- in the cards because -- because we are not applying fiscal stimulus because the ideology is that the governments can't do anything right, right? So we can't expect the government to -- to help.
So you have vital resources, and the Federal Reserve is providing quantitative easing. Well, I think when it expires they wouldn't do any -- wouldn't give it any more, but it does create access, money supply, and -- and when you stop pushing money into the economy, interest rates are going to go up. And it will be the rise of interest rates that is going to choke off the economic recovery.
ZAKARIA: So you foresee a rise in interest rates in -- in the United States which will kill growth?
SOROS: That's right.
ZAKARIA: Do you think that they're -- there's danger of -- of state or municipal defaults?
SOROS: There will be fear of it, and there will be defaults, yes.
ZAKARIA: When we come back, I'm going to ask George Soros what he thinks about the sometimes truly bizarre attacks upon him from some parts of the right.
SOROS: FOX News makes a habit. It has imported the methods of George Orwell, you know, newspeak, where you can tell the people falsehoods and deceive them. But this is a very, very dangerous way of deceiving people.
ZAKARIA: George, I want you to look at a piece of video we have here.
GLENN BECK, FOX NEWS HOST: The question is, do we have a shadow government? And, if we do, who are those intelligent minority that is -- that is guiding us through? And where are they guiding us to?
If you skip past all of the puppets and the strings, if you stop looking at the puppets themselves, you have to see who's behind the puppets. Who is choosing the puppets and the players? Who's the puppet master?
ZAKARIA: So, George, Glenn Beck has been on this kick that you are actually the mastermind who is trying to bring down the American government. How do you react when you see this kind of thing?
SOROS: Well, I would be amused if -- if people saw the joke in it, because what he is doing, he is projecting what FOX, what Rupert Murdoch is doing, because he has a -- a media empire that is telling the people some falsehoods and this -- and leading the government in the wrong direction.
But, you know, by accusing me of doing that, it kind of makes it rather hard to see that it's really, he is working for the man who is doing it, which is FOX News.
ZAKARIA: But it's very personal. I mean, he talks about you as a 14-year-old boy and he accuses you of -- of essentially helping to round Jews up -- you're Jewish yourself. You've lost --
ZAKARIA: You lost many, many people in the holocaust. How did you feel when you heard that?
SOROS: Well, look, FOX News makes a habit -- it has imported the methods of George Orwell, you know, newspeak, where you can tell the people falsehoods and deceive them. And you wouldn't believe that at an open society and a democracy these methods can succeed.
But, actually, they did succeed. They succeeded in Germany where the Weimar Republic collapsed and you had a -- a Nazi regime follow it. So this is a very, very dangerous way of deceiving people, and I would like people to be aware that they are being deceived.
Now, I -- because I saw it as a child, I immediately react that way. But people in America, they are innocent. They -- they haven't had the experience. But having the experience now, and I hope they wake up and they realize that they are being deceived.
ZAKARIA: What do you think of this broader movement of the Tea Party, of -- of what's going on on the right?
SOROS: Look, I think the people in the Tea Party are very decent people, hard-working. They've been hit by a force that -- that comes from somewhere which they can't fully understand, and -- and they are being misled. And they are misled by people who are using it for their selfish purposes, namely to remove regulations and -- and reduce taxation. So reduce taxation and regulation, and they are being used and deceived.
ZAKARIA: Do -- do you think that there is some -- I'm struck by the fact that when I first met you, you were always accused of being this ultra capitalist. You were the speculator, you were the person who, you know, understood markets better than anyone.
And now, you're painted as this kind of left wing iconic figure. It's been quite a journey.
SOROS: Well, you just had the experience of speaking through the -- to the puppet master and the extreme left wing manipulator, and you and the audience can make their own decisions.
ZAKARIA: And we will. George Soros, thank you very much.
SOROS: My pleasure.
ZAKARIA: We will be back.
To watch the video, go to [www.georgesoros.com]