6 February 2011
“I see more inflation and more currency turmoil as we go forward. There are huge debt imbalances in the world. The US is the largest debtor nation in the world and all the assets are in Asia. The largest creditors in the world are China, Korea, Japan, Taiwan, Hong Kong, Singapore – this is where the assets are and the debts are in the West.
“Those imbalances have to be resolved. They frequently lead to more currency turmoil. We’ll see more inflation, we’ll see more governments fall. We just saw Tunisia fall – more are coming because the world is going to continue to have these problems, and especially inflation that is going to cause more social unrest.”
But the above quote came from an interview Rogers gave to US-based economist, investor and blogger Chris Martenson. In the interview, Rogers warned against giving too much credence to spin from central bankers; despite their claims to the contrary, inflationary pressures are building worldwide. Here’s another excerpt:-
Jim: Well I’m short US Treasury bonds. It’s my view that people will cut back. I mean, the US is the largest debtor is the history of the world. And I’m not the only person who knows that. And the debts are getting bigger, if not worse. And Bernanke is printing a lot of money [through QE2]. So you combine money printing with big debt issuance and normally people say, “I don’t want to lend you money for thirty years, not in that kind of environment.”
I’ve sold the bonds short: that does not mean interest rates will continue going higher, but it might. [*note: Jim has informed us he closed out this short position a week after recording this interview, given the increases in international social unrest]
Chris: … If or when the US defaults … either through devaluation or pure default, what specific steps do you see China, Japan, the rest of Asia taking to protect their interests?
Jim: Well, if the US defaults on its obligations, which it may, it may well someday, Asia’s got a whole lot more on its plate than just trying to protect their interest. And by then the world is in pretty serious turmoil currency turmoil, economic turmoil, and I presume that those governments will start public works projects in order to try to pick things up. Because if the US dollar collapses, which it will someday, it may make the US more competitive, but you have to have something to sell. You can only sell so much on price, and it will take a while. Conceivably, other countries will then become protectionists. We already see protectionism rising, and if that happens, then of course it’s all over.
If you have serious turmoil in the currency markets and the rise of protectionism, that’s called serious, serious economic collapse. Then economic collapse of course usually leads – usually has led – to war in the past. So it wouldn’t be a pretty picture if and when the US defaults.
As usual, Jim is right and would strongly recommend listening to the entire interview via Chris’s website or reading the transcript. By the way Rogers, co-founder of the Quantum fund with George Soros, is author of several best-selling books including Investment Biker and Adventure Capitalist. Both are excellent. He has also latterly gained a reputation as something of a commodities bull.
In a thoughtful blog post, the BBC Newsnight economics editor Paul Mason has elaborated on some of these themes. Mason does not broach the curious paradox of how Fed chairman Ben Bernanke’s policy of QE2 is feeding commodities and food price bubbles that are indirectly leading to the toppling of US-sponsored dictatorships in the Middle East. Instead he focuses on how a new generation of web-savvy graduates both in advanced and emerging economies is far less likely than earlier generations to be conned by government propaganda and lies.
Separately Kate Barker, a former member of the Bank of England’s monetary policy committee yesterday told the Daily Telegraph that, as a result of its disingenuousness about inflationary pressures in the UK, the Bank of England risks destroying its own credibility and risking a more profound loss of faith among the British public. Barker said it will be very damaging if the BoE loses credibility, as British employers will assume inflation is going to remain over target and will raise wages and prices accordingly, leading to a self-perpetuating inflationary spiral.
“If you believe inflation is going to come back to 2% you are going to behave as if that’s going to happen when you’re setting wages and setting prices. Once you start to think this monetary policy isn’t all that it’s cracked up to be, and things need to be changed in some way, then things inevitably become more difficult … It’s like a confidence trick.”
See my earlier blog post on how the US Federal Reserve distorts US inflation figures in order to keep US borrowing costs down