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.
