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The west is finished - Jim Rogers

The west is finished - Jim Rogers

After an intercontinental flight, a conference speech and a hectic book signing session, Jim Rogers looks a tired guy when I meet him. But the American investment guru and co-founder (with George Soros) of the Quantum fund still talks a good talk, with the infectious confidence of a man who has been right more often than wrong.

Right about commodities, where he was predicting a bull market years ago, right about China, where he's been invested since the late 1980s, and most of all, right about America.

In the first of his four books, Investment Biker, Rogers was scathing about the state of US public finances. "We are now the world's largest debtor nation...we are going to hear the term 'currency crisis' a lot more." That was in 1994.

Now, as the cost of the banking bail-outs mounts, the chickens have come home to roost, and Rogers has not mellowed much in the intervening years. He reserves special ire for US lawmakers and most of all, the Federal Reserve.

"The central bank in America had made it clear that it will not let anybody fail, and that has helped create this huge amount of loans," he says. He traces the troubles back to the bail-out of hedge fund Long Term Capital Management in 1998. "LTCM should have failed and had they let it fail, we would not have had so much, if any, of this gigantic creation of toxic waste. Bear Stearns and Lehman Brothers would not have been able to write all this junk."

"Greenspan refused to let them [LTCM] fail, then he printed huge amounts of money, which led to the dot-com bubble, then after that bubble popped he printed huge amounts more money to goose up housing and consumption."

The idea that huge capital injections are now necessary to stop the whole system freezing up is given even shorter shrift. "It's absolutely false...What the hell is Paulson talking about? Investment banks have been going bust for years...What happens is that he gets calls from his buddies on Wall Street, saying 'this is serious and we're gonna fail' and he panics and dresses it up like the whole world's going to end. For God's sake - these kind of things have been happening forever."

What's going on now is "horrible economics and horrible morality," he concludes.

Europe: not much better

Have regulators and central bankers elsewhere done any better, I ask? "Some got it less wrong than others" is the most he will concede. Jean-Claude Trichet at the European Central Bank "at least seems to understand what's going on" while central banks in China and Australia certainly saw the warning signs and took action earlier than others.

Where does the UK sit in the pantheon of ineptitude? Right up there with the US, he says. "The financial system here is maybe in even worse shape than the US," he says. "Look at Northern Rock...it got into trouble, there was a run on the bank, people were taking their money out and putting it in Barclays and Royal Bank of Scotland instead.

"Then the government stepped in and bailed out Northern Rock, so everybody started taking money out of other banks and putting it back into Northern Rock because it was the only totally secure bank. That weakened the other banks so the government had to come in and bail them out too - it's the same idiocy that prevailed in the US."

Rogers isn't anti-establishment for the sake of it - after all, he spent two years at Oxford as a Rhodes scholar, and even coxed the Oxford crew in the Boat Race. But there's no room for sentimentality when it comes to investment. The City of London is pretty much finished, he asserts, and if you're alarmed by the recent slump in sterling, you ain't seen nothing yet.

"In a decade, you're going to be importing oil again - what's going to hold sterling up when you're a net importer of oil? You've already got a balance of trade deficit. I've sold all of my sterling... there are no fundamentals to support sterling as far as I can see."

Go east, young man

All this complacency and ineptitude in the developed world has huge long-term consequences. The centre of financial power is shifting eastwards as the decadent and profligate West lurches deeper into a financial crisis borne out of years of financial mismanagement. Once Asian central banks cease buying US government bonds, all bets will be off.

When will that be? "I don't know, and I don't know why they keep doing it... I certainly wouldn't - I'm shorting US Treasury bonds," he says, and adds the current revival in the dollar is just a short squeeze in the midst of a long, secular decline. "The President has said the dollar is strengthening because it's a safe haven. That is just balderdash. The US is not a safe haven, it's a rolling bankrupt."

This is one of many reasons why Mr Rogers no longer lives in the US. Home is now Singapore, where his two daughters are learning Mandarin. Singapore is clean, efficient, hard-working - and in the right time zone for Asia, which is where world financial power will rest in the future. "All the creditor nations are in Asia now. The five biggest creditor nations are China, Japan, South Korea, Taiwan and Singapore - and throughout history, financial centres have gravitated to where the money is."

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By Jonathan Eley,
01 December 2008

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Jonathan Eley

Jonathan joined Investors Chronicle in 2000 as a specialist in resources stocks. He launched our website in his previous role as Online Editor before becoming Editor between 2009-2012. Jonathan now edits FT Money.

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