Jim Roger Warns Against Too Much Stimulus

Jim Rogers says the world’s leaders have got the solution completely wrong. He joins us now from his office in Singapore.

Jim Rogers thanks for taking the time to talk to us. Now, Warren Buffett said today that the US economy has ‘fallen off a cliff’ and that the next problem will be sky-rocketing inflation. Is he being overly pessimistic?

JIM ROGERS: No, he’s exactly right. I’m glad Warren finally caught on to what’s happening because it’s going to be much worse than he says. He says it can’t get any worse, this is the worst case scenario, he’s wrong it’s going to get worse.

ELEANOR HALL: How much worse?

JIM ROGERS: Well it’s certainly going to be the worst since the ’30s and it looks as though it’s going to be as bad as the ’30s; at the end of six months it might even be worse than the ’30s.

It is staggering to me how bad the politicians are handling this and they’re just making it… for two years they’ve been trying to do something and everything they do makes it worse – it’s mind-boggling.

ELEANOR HALL: Well, Mr Buffett is urging politicians in the US to get behind the President and his stimulus packages, but you’re saying that the policies of the US and indeed the UK and Australian governments are actually making things worse – why?

JIM ROGERS: The idea that you can solve a problem of too much debt and too much consumption with more debt are more consumption – please, miss (laughs). I mean that’s just defies logic if you ask me.

We have a problem where people are too much in debt; they’ve been spending too much. We have to have most economies, not all, you know to settle down liquidate debt, try to save some money and then prepare for the future and invest for the future.

Not go deeper into debt that’s insane.

ELEANOR HALL: But people say these stimulus packages are essential to keep the economy ticking over and just to keep confidence there.

JIM ROGERS: Well miss yes, but remember we’ve had the worst credit excess we’ve had in world history in the last 10 years. You can’t just suddenly say well everything’s okay now, we’re going to ignore the fact that we had a terrible bubble.

You can send more trying to prevent a recession and if you just go ahead and have the recession and get it over with. We have safety nets now; we have umbrellas to help protect people. I mean this is just making the situation worse. They’ve been doing the same thing for 10 years and it’s getting worse.

ELEANOR HALL: So what should the world’s leaders agree to at the G20 Summit next month? What should they be working on to deal with this crisis?

JIM ROGERS: Most of them should resign, and the ones who won’t resign they should all go down to the bar and just have a beer and leave the rest of us alone. Let us get on with it. People know what to do – people know to cut spending, they know how to start saving money.

Governments should do the same thing; governments should cut taxes and let people rebuild their savings. We have a huge dearth or lack of savings in most of the Western countries.

ELEANOR HALL: But you mentioned the Great Depression, I mean, wasn’t the lesson of the Great Depression that government couldn’t just stand on the sidelines; that it had to get involved and pump money into the economy, into the system?

JIM ROGERS: Miss, Franklin Roosevelt who was the American president then did everything you’ve just gone through saying, and what idea of doing and what’s he in now? But in 1940 the unemployment in America was higher than it had been in 1931. You know, more or less in the problems of the recession.

Secretary of the treasury in Washington at that time came out and said, ‘Listen we have not solved the problem we have done nothing more than get America deeper and deeper and deeper into debt. This did not work.’ That comes from Franklin Roosevelt’s own secretary of the treasury in 1940.

ELEANOR HALL: So, how long it will be before things turn around on their own then?

JIM ROGERS: Well, if they left it alone it might get over in two or three years, four years. I mean unfortunately now they’ve wasted so much money, you know if they’d taken $700-billion as they did in the US and started a sound bank, my goodness that could be a huge and successful sound bank making loans.

But what they’ve done is they’ve thrown hundreds of billions of dollars into unsound, losing banks trying to prop up losing assets.

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I know your mother taught you not to throw money down a rat-hole. I know your father told you not to throw good money after bad. That’s what they’re doing now. They’ve got to let people go bankrupt, they’ve got to clean out the system, we have to start over.

Yes, we’re going to have a hard two or three years, but we had a huge, huge bubble – somebody has to pay for that. I don’t particularly like it, none of us do, but facts are facts.

ELEANOR HALL: So you say it’ll take three years without the stimulus packages. What if these stimulus policies continue, how long then will it take for us to get out of this crisis?

JIM ROGERS: Well miss, by this time next year everybody’s going to realise that none of this is working. Remember we’re two years into it already and nothing has worked to date. But by this time next year people will realise that nothing’s working, America will be much, much deeper into debt.

You’re going to see inflation, you’re going to see higher interest rates, you’re going to see a declining US dollar and you’re going to see social unrest. This is not a good time.

ELEANOR HALL: Now, you rocked financial markets with your blunt statement that this crisis will finish Britain. What exactly do you mean by that?

JIM ROGERS: Well the United Kingdom, which is one of my favourite countries, has, the North Sea oil is drying up there and that’s been one of their major sources of income. They also had a source of income in the City of London, which is also drying up.

So they’re losing two of their major sources of income. I see nothing on the horizon which Britain has to sell which will replace those two gaping holes, and therefore the Pound Sterling’s going to be in serious trouble. Britain is already a huge debtor nation; it is piling up even deeper debt.

I hate to say it but if I were you I would sell your Sterling if you have any. I’ve sold mine.

ELEANOR HALL: And what about Australia? I mean politicians in this country are following the same sorts of policies that you’ve criticised in the UK and the US. Will Australia also be finished?

JIM ROGERS: I’m afraid the lucky country’s not so lucky anymore is it? No Australia should be one of the better placed countries for all of this. The best part of the world economy in the next 20 years in going to be natural resources: farming; mining, things like that. Australia should be well situated.

Unfortunately your government is racing around running up gigantic debts instead of, you know, building to your strengths, building for, investing for the future, letting people save and invest. It is staggering to me to watch the Australian politicians who should be reaping the benefits, and Australia should be reaping the benefits, just throwing money down a rat-hole.

ELEANOR HALL: And how do you think China will fair?

JIM ROGERS: Well China’s going to wind up better than most. Sorry, less affected than most. But that’s only because China has gigantic reserves; China has got huge… it’s the largest creditor nation in the world, they’ve saved up big reserves for a rainy day. Well, now it’s raining and they’re starting to spend some of it.

They seem to be spending it in a wise way but don’t think China’s not going to be affected too. Nearly everybody’s going to be affected. Some parts of the Chinese economy were devastated, others will do fine.

JIM ROGERS: Jim Rogers in Singapore, thank you.