Jim Rogers: Central Banks and Governments are Ponzi Schemes

Jim Rogers has been interviewed on BBC Radio on the 26th of  December 2011 where he explains that the current flow of money between the governments and central banks around the world is a "ponzi scheme, a fraud and a sham" and everything is going to get much worse in the end.

Here's the transcript of the interview:


Jim Rogers: Martin, it's very serious. America is the largest debtor nation in the history of the world and it's getting bigger and bigger by leaps and bounds at the rate of over $1 trillion a year. And in Europe you have several bankrupt countries and no one is dealing with the problem. If you look at the projections for all the European countries, none of them have reduced debt a year or two or three from now. So, this situation is serious and getting worse.
Martin Webber: Thinking back to the mid-1990s, capitalism seemed ascendant, western capitalism had triumphed over communism, economies were growing, stock markets were growing. Who do you blame for the fact that we have ended up in this mess?
Jim Rogers: Well, essentially it's governments and central banks; especially in the US they just kept spending money and the central bank just kept printing money. But there are several culprits.
Martin Webber: Who else apart from these authorities?
Jim Rogers: The government of United Kingdom, the central bank in the United Kingdom, the governments in places like Greece which used phoney bookkeeping, but also even Italy and France and Germany. They all started using phoney bookkeeping. They knew that the other countries were using phoney bookkeeping and they all said, oh it's okay, everything will be okay in the end.
So, the central banks and the governments were going hand-in-hand and spending money they did not have. Now, that's wonderful. It's great. It can cause huge growth. As you just pointed out, for 15 years you had great growth. But eventually, somebody has to come up with and pay for it, or eventually you just run out of other people's money.
Martin Webber: What seems to be going on at the moment is that central banks are creating money, lending it to banks, who are then lending it to governments in terms of buying their bonds because the private investors are no longer doing that. So you have got government owned institutions effectively buying government bonds. People don't seem to really understand what on earth can be going on?
Jim Rogers: It is a recipe for disaster. I am glad you pointed it out because there is nothing more authoritative than the BBC. It's a Ponzi scheme, it's a fraud, it's a sham and we are all going to have to - we are already starting to pay for it, Martin. It's going to be much, much worse in the end.
Eventually one of two things has to happen. We have to get together now and ring-fence the problem and figure out how we are going to survive and start over. Or, in a year or two or three, the market is going to say, no more money, we won't put up any more money. And then the whole system collapses, then you have gigantic chaos, social unrest, governments failing, civil war - huge mess.
Martin Webber: Let's try the more optimistic scenario. You say it is possible still to get a grip on this problem, what are the measures that need to be taken right now then to avoid the other scenario of civil war?
Jim Rogers: Well, at the moment some governments have credibility, Germany for instance still has credibility. And if they all got into a room together and Mrs. Merkel said, okay, you guys are going to fail, you have failed, and now you are going to fail. We are going to hold these banks, these companies up. We are going to make sure they survive. We are going to make sure bank deposits are okay. We are going to make sure checks continue to clear and the system will survive. Some of you are going to take huge losses and huge pain, but then we start over.
It would be a terrible two- or three-year period, Martin, but then the system could survive and we could rebuild after the people who have made mistakes take the losses. That's what capitalism is supposed to be all about. If you fail, you fail.
Martin Webber: And what are the mistakes then? Is it that the people who bought government bonds of France, Italy and all the other countries are going to have to take losses?
Jim Rogers: Absolutely. The banks who made these loans, and the bondholders who bought these loans, and the stockholders who own stock in these banks. They were making mistakes. They are all going to have to take huge losses. Now you are going to say, that's very painful, that's bad.
Well, I will remind you Martin that in the early '90s, Scandinavia had the same problem. They did exactly this. They ring-fenced everybody, many people failed, there was horrible pain, but after three or four years Scandinavia has been one of the great growth areas of the past 15 years or so. That's the way the system is supposed to work.
In Japan in the early '90s, they said nobody will fail. Well you know they have lost two decades in Japan. You know about zombie banks. You know about zombie companies. The Japanese way doesn't work. It is not going to work in America or Europe.
Martin Webber: So we got a situation there where people invested in banks lose money, presumably people with pensions who have investments in these banks lose money, and government bonds lose money too. But the politicians have a much nicer sounding solution it seems, which they have just come up with, which is that the European Central Bank creates money, lends it to the IMF and the IMF then lends it back to them. Sounds much nicer, doesn't it?
Jim Rogers: It sounds wonderful, doesn't it? But it is not based on reality. It's based on "Never Never Land." It's based on the "tooth fairy." Somebody has got to come up with real money somewhere along the line and payoff real debts somewhere along the line.
Martin Webber: But isn't that possible, that if you are the government, you can create as much money as you want because it's your money?
Jim Rogers: You certainly can. You can debase currency, and history is replete with governments that have debased their own currency and ruined their own currency for hundreds of - well for thousands of years it has been going on. You can do that and everything is okay for a while, but eventually you have inflation, you have high interest rates, you have currency turmoil, you have people no longer trusting each other to invest with each other, and then you have the end of the system, and we have chaos, and it starts over again.
Martin Webber: Is that not the more likely scenario in that the politicians never like to tackle problems. They are always interested in the next day's headlines. Isn't it more likely they will find yet another ruse to put off the day of reckoning?
Jim Rogers: Absolutely. You are a very insightful observer of the passing scene. That's exactly what they are going to do. If a politician ran on the platform, oh my gosh, we have got to take a lot of pain. Even if he won, Martin, which is very unlikely, but even if that politician won, after six months or a year or two of serious pain, he will be either thrown out or assassinated or something would happen because people would say this is too much pain. We didn't know you meant it was going to be this bad. Let's get out of this.
Martin Webber: Now many people say it's the euro that's at the heart of this crisis. They are calling it the "euro crisis." Is that how you see it?
Jim Rogers: No, absolutely not. It's not the euro. The world needs the euro or something like it to compete with the US dollar. We need another sound currency. The eurozone as a whole is not a big debtor nation. The eurozone has some debtor problems, some debtor nations, debtor states, but it's not a big, big problem. The euro is good for the world. It needs to work.
Martin Webber: Do you think in the past that political leaders were stronger, perhaps were less influenced by short-term considerations, had a greater feeling for the common good, perhaps the people themselves had a greater community spirit and would actually be happier to take austerity to understand you have to live within your means. Do you think in a way it's not just the political class, this is something at issue in society as a whole?
Jim Rogers: That's good observation, yes. We did have more discipline and more understanding in the past few decades, but that's partly because of the history of those decades. We remembered the First and Second World War. We remembered the Great Depression. We remembered what happened when you got too leveraged and couldn't pay your bills. We knew what happened when you debased your currency.
But now of course, since the Second World War, we have had two or three generations grow up who don't remember all of that, haven't read their history, politicians who didn't know anything about history at all and don't know anything about economics at all. So everybody thinks there's a free lunch.
Martin Webber: Do you think the media is to blame?
Jim Rogers: Well, the media are the same ones, Martin. I mean, you and everybody else grew up went to the same schools, had the same teachings and had the same period of good times. Since the Second World War, things have been pretty good in most of the western world, the developed world anyway, and we all grew up thinking, well this is the way the world is and it has been that way. But that's not the way the world has been for the past few thousand years.
Martin Webber: We have had this "Occupy Wall Street" movement emerging. Do you have any sympathy with any of the things that they are saying?
Jim Rogers: Well, I do have sympathy with the fact that they are saying, we shouldn't have bailed out the banks. I would have let all those banks go bankrupt, as you've heard me say before. But beyond that I don't have too much sympathy with them. You know, we all want a free lunch. I would like somebody to pay my bills too. I would like somebody to take care of me the rest of my life too.
Listen it's outrageous that the government took the money and saved the banks. Absolutely, they are right about that. It's outrageous, totally outrageous that governments went and bailed out some banker so they could keep their Lamborghinis and their summerhouses. But beyond that, I don't have too much sympathy with them.
Martin, whenever there are hard times, people look for somebody to blame. And they always blame the financial people, they always blame foreigners, and they always blame reporters. They always say, well if the reporters didn't write about this problem, we wouldn't have a problem. So be careful. Financial types get blamed first, the foreigners get blamed second, you are next.
Martin Webber: Okay. I am prepared.

Jim Rogers BBC Interview - 26 August 2011

Interview transcript:

Jim Rogers: I hope it's only one decade of loss that we lose in America. Japan has had two lost decades now, as you probably know, and America is in much, much, much worse shape than Japan.

America is the largest debtor nation not just in the world, Justin, in the history of the world. We have serious problems. They are not addressing the problems in America. So I hope it's only one or two decades we lose. It may be three or four.

Justin Rowlatt: So what do American politicians need to do?

Jim Rogers: First they need to get a little education about the rest of the world and about their own economic situation and then we have to change our tax code dramatically. We have to cut spending with a chainsaw; not with an axe, with a chainsaw.

We got troops stationed in over 120 countries around the world. I mean the politicians have sent them there you know, and those military establishments are making things worse for America, not better. We got to change our total way of thinking just as the British did when the British started facing reality.

Justin Rowlatt: When you say face reality, you seem to be suggesting that the age of American supremacy is over?

Jim Rogers: Absolutely, aren't you? Listen to the BBC and you will hear what's going on in the world. The 19th century was the century of the UK, the 20th century was the century of the US, the 21st century is the century of China, of Asia, Justin.

I mean, here is a simple fact. The largest creditor nations in the world now, Justin, are China, Korea, Japan, Taiwan, Hong Kong, Singapore. Those are all Asian countries. This is where the assets are. This is where the energy is, the dynamism is. You know who the debtors are and where they are.

Justin Rowlatt: I mean the Chinese economy, for example, just to take one Asian economy, isn't looking so healthy itself, is it? I mean, yes, it's still growing, but there are these real concerns about inflationary pressures within the economy, which could derail Chinese growth, couldn't they?

Jim Rogers: Extremely insightful of you. Yes, China has got some problems and they will continue to have problems. Fortunately, they realised the problem. They are trying to cut back on the inflation.

They have made some mistakes too. They should have opened their currency to make it a convertible currency. The fact that it's not convertible and all that money trapped in China is just adding to the inflation. So yeah, they are making mistakes too. Still, I'd rather be with the creditors than with the debtors any day.

Justin Rowlatt: I suppose what I am suggesting is that you look at America, you look at Europe, you even look at China and India, the two great Asian behemoths, and you see problems across the world economy. Are we entering now a period of slow growth globally?

Jim Rogers: Oh, yes. Yes, yes, absolutely. If that's what you meant, there is no question about that. You just pointed out that China has got its own problems, but this is the way the world has always worked. We have gone through long periods when things were great followed by long periods when things slowed down for a while and we cleaned up mistakes of the past.

Justin Rowlatt: So you think we are entering one of these cyclical periods of slow growth worldwide?

Jim Rogers: Unless you know something I don't know, yes, absolutely. The only areas of the world economy I see that are going to be dynamic are natural resources; farming is going to be one of the best professions of the next 10 or 20 or 30 years.

Justin Rowlatt: You seem very sanguine about it, but you don't seem very worried by it?

Jim Rogers: No, not at all. The world has been going through big changes like this throughout history. In the '20s and '30s, the world moved from the UK to America exacerbated by a financial crisis and mistakes made by politicians.

The world is going through a historic shift again from the US to Asia exacerbated by a financial crisis and mistakes made by politicians. Justin, the world has been going on for a few thousand years and there have always been big changes and adjustments.

At some times in history, the financials types have been in charge; at other times in history the people who produced real goods have been in charge. It's the way the world has always worked. The key of course is to figure out what's coming next and go there. Become a Chinese farmer, that's what you should do, Justin.

Justin Rowlatt: You say farming, why do you think farming will be such a crucial sector in the next couple of decades?

Jim Rogers: Farming has been a disaster for 30 years, Justin. The average age of farmers in America is 58 because it's been such a horrible business. The average age of farmers in Japan is 66. In Australia, it's 58. I could go on and on. In 10 years, those farmers are going to be 68 if they are still alive.

Justin, we have huge shortages developing in agriculture and great fortunes are going to be made by the people who address those problems.

Justin Rowlatt: And commodities is the other sector you said we should look up. Now hold on a second. If the world economy is entering a period of slow growth that you think is going to last not one decade but a number of decades, why on earth would you put your money in commodities?

Jim Rogers: Because you asked where the best areas of the world economy are going to be, that's where the shortages are developing. In the 1970s, most of the world's economies were in the tank, but commodities boomed.

Justin, we had one of the great world markets of history in commodities for about 15, 20 years in the '70s, between the '60s and the early '80s in commodities, because we had huge shortages everywhere and because governments everywhere printed money.

Well, governments are printing money again. It's a wrong thing to do Justin, but that's all they know to do. So between shortages of supply and money printing, if you want to be in the dynamic parts of the world economy, don't get an MBA and go to Wall Street, go and get a farming degree and move to Asia.