Saturday, June 11, 2011

Current problems of US cannot be fixed without a crises says Jim Rogers

At the age of five he started to sell peanuts for profits. Later he became a hedge funds pioneer and commodities trader.  In December 2007, he shifted much of his money and his family out of US to Asia[1]. Jim Rogers now lives among us in Singapore. He claimed that he moved because now is a ground-breaking time for investment potential in Asian markets:[2]

"If you were smart in 1807 you moved to London, if you were smart in 1907 you moved to New York City, and if you are smart in 2007 you move to Asia,"[3]

Jim Rogers has a lot to say about the future of US and when he talks we should listen to this legendary investor carefully. In an interview with Wall Street Journal's Simon Constable this week, Jim Rogers talks about solution to  the U.S. debt crisis, why he's shorting U.S. tech companies, why the stimulus package was a bad idea, and the looming energy crisis.

"SC - Debt ceiling is reached, there is no more money left for stimulus and FED told us that there is nothing more it can do about it. How will we deal with this?

JR - Well, I hope somebody will wake up and say we have made a lot of mistakes in the last 40 years and we have got to do something about it. If your brother-in-law spends all his money over and over again, somebody tells him "OK brother-in-law. You need to shape up. Facts are facts, you are broke deal with it. " We need to shake up and deal with the fact that we are broke.

Jim Roger does not see any way to avoid the next crisis. He says that "we (US) need to cut the spending with an axe. With a chainsaw. We are in trouble. Somebody has to understand that.". And then he continues:

"No country in history got itself into this kind of situation and has gotten out it without a crisis or semi-crisis. The only way to get attention of Washington is to have a crisis or let's hope just a semi-crisis. Then they will be thrown out by the elections and hopefully we will start with new people who can deal with the crisis."

"You have seen what happened in 2008. We had a little crisis. It did not get anybody's attention. They have bailed out their friends in Wall Street. They did not deal with the problem. And then they have started to spend more and more money. They did not deal with the crisis. They have tried to push it to the next elections."

Simon Constable asks Jim Rogers was the Keynesian financial stimulus was a good idea. Jim Roger's replies:

"Absolutely the wrong thing to do. Totally wrong thing to do. Japanese are trying to do this for the past 20 years, not letting anybody to go bankrupt. You remember the term "zombie banks" or "zombie companies". 20 years later Japanese stock market is down 80 percent below where it was 20 years ago. It did not work in Japan and it will not work here. It will make things worse."

But some politicians will tell us that we need to spend more, it did not work because we did not spend enough. Just like the ones in casino.

"We have already quadrupled our debt to guarantee the companies like Fannie Mae. We cannot quadruple our debt again. We cannot print any more money. The world does not have enough trees for Bernanke to print more money. The market will not take it any longer."

Rogers think more regulation is a nightmare and driving business out of US. Some people may think that we could avoid the financial crisis if we had more regulations. But Jim Rogers think differently:

"We had the regulations. FED is supposed to look at the banks and supposed to make sure they are doing what they are supposed to do. Regulations are there we just need confident regulators. If they haven't bailed out the Long-Term Capital Management, Lehman Brother's was still in business today. They would lose a lot of money, fire incompetent people and they would not go into the mess which bankrupted them in 2008."

Jim Roger's does not think the bankers has got the message. "The bankers did not get the message out because they are bailed out whenever they have a problem. When they are in trouble they start to cry "save me", "save me". "Save me Dr. Greenspan, save me Dr. Bernanke, save me somebody". And they will be saved."

How will we get out of this? Jim Rogers says "let them bankrupt. If in 1998 for instance, when Long-Term Capital played out everybody has gotten burned, if in 2001 everybody have gotten burned if you have let the market work. The problem is Washington will never let the market work. They want to bail out everyone instead of market wipe out the excess."

[1] - BBC HARDtalk - Jim Rogers
[2] - Jim Rogers
[3] - Jim Rogers on commodities and currencies

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