Jim Rogers has made money as an investor over several decades by learning about and understanding global long-term fundamental drivers. He has been an outspoken critic of our current Federal Reserve Board policy and of government deficit spending. With the current bull market pushing six years and the historic open ended quantitative easing policy nearly finished, we thought it would be a good time to check in with Rogers, who now lives in Singapore, regarding the bull equity market, commodities and the long-term effect of this extraordinary period of central bank activity. He shares his thoughts on the global economy and offers some surprising views on potential economic and political changes.
Futures Magazine: The current bull market, which some people view as a creation of central bank policy, has been going on for more than six years without a serious correction. Is one due?
Jim Rogers: [There is] a worldwide ocean of artificial liquidity; the ocean is getting bigger all of the time. It’s the first time in recorded history that all the major central banks have been printing money. The Japanese said they would print unlimited amounts of money, Europeans said we will do whatever it takes, the English say ‘“let us in too,” the Americans—you know what they are doing. [The Fed] says it is cutting back on its purchases but in the meantime the money printing continues. The people who are getting this money are having a wonderful time; and their friends are having a wonderful time, unfortunately it is artificial and it has got to end someday. I don’t know when “some-day” is, I’m terrible at market timing in the best of times [let alone] when [we are seeing something] that never happened in world history. When it ends it is going to be a nightmare for everyone concerned except the people that get it right. Most of us will not get it right. We have had economic setbacks in America every four to six years; we are going to have them again. The one in 2008 was worse than the one in 2002 because the debt was so much higher. The debt has gone up a staggering amount since 2008. The next time it is going to be worse. I hope we all survive it. If we somehow survive the next one, then for the one after that: I doubt if anyone could survive because the debt will be so high.
FM: Normally a bull market lasts about as long as the post credit crisis boom, but no one would mistake the last six years as an economic boom. Can a downturn hit right when we begin seeing a strong recovery?
JR: The people in Washington, the academics say [a stronger recovery] is coming. Let’s say they are right, it still doesn’t preclude somewhere along the line an economic setback—and when it does hit, it is going to be staggering because the situation is so much worse.
FM: You had been very critical of the performance of Ben Bernanke and the Federal Reserve. Playing the devil’s advocate one could say the Fed averted a disaster or delayed it, and now we have to see if the Fed can safely unwind from this extraordinary accommodation.
JR: They would say “yes” and their apologists would say “yes, they saved the world.” My response to that is go back to the early 1990s, the Japanese did the same thing. They refused to let people fail and the Japanese had a lost decade, and a second lost decade; even today the Japanese stock market is still down 70% from where it was 24 years ago. Yes, the Japanese central bank saved them in 1990 but most people would prefer it not to have happened that way. Scandinavia had the same problem in the early 1990s. They let people fail. They had a wretched two or three years but after they got over the pain they have had a prosperous two decades in contrast to Japan. This way doesn’t work.
FM: What else could the Fed have done?
JR: [They could have done] exactly what the Scandinavians did. In the early 1920s the Federal Reserve raised interest rates. Washington balanced the budget. We had a horrible year or two but then we had the greatest economic decade in American history in the1920s. It ended badly because of excesses. You bite the bullet, you take the pain. The way the system is supposed to work is people get into trouble, they make mistakes, somebody comes along, reorganizes, and they start over from a stronger base. What the West has done is we have gone in and taken the assets away from the competent people, given them to the incompetent people and said to the incompetent people, “now you compete with the competent people with their money.” It is absurd economics, it is absurd morality. It’s insane. Central bankers will tell you it is great. They say don’t worry we are going to withdraw from this slowly and gradually. In 2008 when they were contemplating this, [FOMC] minutes showed that they didn’t know what they were doing but they didn’t know any other choice. …You asked how it is going to end, it is going to end badly. Like Japan, if we are lucky. When the next problem comes, because it is going to come, it is going to be a nightmare.