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Jim Rogers is concerned about the financial problem America is facing. He believes that when the next financial crisis hits, it will be the worst of his lifetime. And this time, there won’t be anyone to bail us out.
In this exclusive interview with Birch Gold Group, Rogers warns Americans to be cautious of the upcoming, catastrophic financial event and says he plans to purchase more precious metals before then.
Sheldon Anderson: Sheldon Anderson, I’m with the Birch Gold Group. Sitting down with legendary investor – they always call you “legendary investor”.
Jim Rogers: I don’t know why, it’s absurd.
Anderson: It’s nice though, I suppose.
Rogers: I’m a simple person.
Anderson: Well, you’re a simple person, but you’ve correctly called some crises, and this crisis, you’ve recently said that it will be the worst of our lifetime…
Rogers: What I said was the next time we have a financial problem, and in America we’ve had financial problems every four to eight years since the beginning of the republic. We don’t have to have them, but we always have, and I suspect we will continue to have them. Whether it’s four to eight years or four to fifteen years, I don’t know, but I know we’re going to have another one. What I said was, the next one, when it comes, is going to be the worst in my lifetime. 2008 was bad because there was a lot of debt. Well, the debt is much, much higher now, Sheldon, than it was in 2008, everywhere in the world. People talk about austerity but nobody, nobody has reduced their debt. Everybody has increased their debt. The Federal Reserve in the U.S. has more than quintupled its balance sheet alone in nine years. I mean these are staggering things that have been happening, and so the next time we have a problem is going to be the worst in our lifetime.
The next [financial crisis], when it comes, is going to be the worst in my lifetime.
Anderson: Isn’t it sort of fueled by the fact that they’ve had interest rates pegged around zero for like a hundred months?
Rogers: Yes, interest rates have never been this low in recorded history. In many countries, interest rates are actually negative still. They were more negative before, but they’re still negative in many countries. It’s all absurd what’s been happening! If twenty years ago we had said, interest rates are going to go to zero and they’re going to go to negative, people would have said that’s incomprehensible, it cannot happen, and if I explained it’d be done by the central banks, they would really say it’s incomprehensible because in those days, in the old days, people thought the central banks knew what they were doing, and they were certainly sounder than they are now. By the way, I should tell you, Mrs. Yellen, who’s the head of the central bank in America, says there will not be any more problems.
Anderson: In our lifetime!
Rogers: In our lifetime.
Anderson: That’s right.
Rogers: So I’m giving both sides.
It’s all absurd what’s been happening!
Anderson: There’s a massive disconnect there. Somebody is right, and it looks like we go through these cycles and it seems like this one is going to be worse than ever before, and it seems like the solution to the ’08 crisis essentially created the next crisis. And are we months away from that manifestation, years away?
Rogers: When these things start, they start small. In 2007, Iceland went bankrupt; most people didn’t know what Iceland was, that it was a real country, much less that it could go bankrupt. Then Ireland went bankrupt and Bear Stearns went bankrupt, and then the Lehman Brothers went bankrupt, and after a year or two, everybody said oh my gosh, there’s a problem, some-thing’s going on here! That’s the way this one will start, it may start this fall, I have no idea, but certainly by a year or two from now, we will all know, hey, there’s something wrong.
Certainly by a year or two from now, we will all know, hey, there’s something wrong.
Anderson: Do you think that a harbinger for this are some of these state defaults? Like the state of Illinois and Puerto Rico? I mean they don’t live in a void, so something is definitely wrong.
Rogers: I would certainly suspect that it could well be one of the U.S. states, and most people have never heard of Puerto Rico. Most people have never heard of Illinois, just like most people have never heard of Iceland. You and I have heard of Illinois because it’s a big American state but you know, in the wilds of the world, they don’t know what Illinois is, but it’s probably going to be some place like that. We do have several states that are essentially bankrupt, and I don’t see how Illinois will ever pay its debts.
Anderson: So this is a debt problem, and a lot of bond holders think that they’ve got something solid there, but debt, if it goes away, that’s a big risk. What does it look like to a typical investor, with a “buy and hold” strategy when we see this next crisis?
Rogers: Well if he has a buy and hold crisis, if he’s watching, he’s going to see the value of his holdings go down a lot, but most of them will say to you, it doesn’t matter because they always go back up. That has been true in the U.S., it certainly has been that eventually they go back up. It may take a long time, and some of your holdings may never go back up, but the averages have always gone back up. The averages are at all-time highs in the United States.
Anderson: But isn’t this all because of the bailouts? Who is around to bail us out this time?
Rogers: You said it very well. The problem of 2008, that their solution has led to the problems we’re going to have next time around. All this money printing, all this gigantic debt is leading to the next problem, is why the next problem is going to be so bad. Who is to bail us out, the central banks will print, they will do whatever they can. They will print as much money as they can, they will spend as much money as they can, or get the government to spend as much money as they can, and they hope it works. But Sheldon, they may even get us out of the next one, but the one after that, no matter what they do, the time after that, there’s no hope.
Anderson: But this time around, their interest rates are at zero, they don’t have any leniency, they’re going to have to print dollars. Is that not good for metals, gold, silver? What does that look like?
Rogers: I own gold and silver, I haven’t bought any gold and silver significantly since 2010, but I haven’t sold any gold and silver. I’m hoping to buy more gold and silver in the next year or two.
Anderson: Silver is trading at multiples where it’s 75 times cheaper than gold. Isn’t it a good buy at that level?
Rogers: On a historical basis, silver certainly is cheaper at the moment than gold. I own some silver, I plan to buy silver and gold. See?
On a historical basis, silver certainly is cheaper at the moment than gold.
Anderson: He’s carrying silver! He throws it on the table!
Rogers: I’ve got my silver, and I certainly will buy more gold and silver when the time comes.
Anderson: Well I really appreciate it. I think that this crisis is going to be worse than we’ve ever seen. I don’t think anybody has a clue as to how bad it’s going to be. It looks like there’s nobody to bail us out this time.
Rogers: They will do the same old things they did before. They will try to drive interest rates and even lower negative rates, but Sheldon, you have to remember, Mrs. Yellen says it’s not going to happen. She says there’s something wrong with you and with me for saying that.
Anderson: Well if I have the same thing wrong with me that you have, then I’m in good company.
Rogers: Well we both have the same thing wrong compared to Mrs. Yellen. It’ll be interesting to see if she’s right. We’ll certainly know in 30 or 40 years whether she was right, whether we never have another financial crisis or not.
Anderson: Does it not pay right now then to be a little contrarian? If everybody thinks it’s going to work out and the stock market is at all-time highs, and bond markets are at all-time highs…
Rogers: I will not buy shares in the U.S., under any circumstances. Not now. If you have to buy shares, Japan is down 50% from its all-time high, China is down 50% from its all-time high. Russia is hated. There are markets in the world that are not racing after all-time highs if you have to buy shares. Now I don’t have to buy shares so I’m not buying shares.
I will not buy shares in the U.S., under any circumstances. Not now.
Anderson: Final question is liquidity. So, Bill Gross is on record where he says, “the financial system is a truckload of nitroglycerine going down a bumpy road.” This guy is the top guy in bonds ostensibly, in the United States, “Bond King”, and he says when people start to sell, there’s no buyers for these markets on the other side, and when they go back to the bank, the banks don’t have it. That’s the same thing that we saw in ’08. What about the ability to have possessions outside of the U.S. banking system? Outside, i.e. physical metals, or what have you.
Rogers: Everybody should certainly have reserves in other countries, in other assets and in other places, there’s no question about that, but he is right. Once they start selling, the central banks can buy, can try to buy, but Japan has already bought – the Japanese central bank, has already bought nearly all the bonds in Japan. I guess they can buy even more, but eventually, your currency is debased and ruined when that happens. Which is another reason that I would expect the next crisis to be worse than the past because now we’re going to have even more currency crises than we did before. The Euro is not very credible anymore, the Yen is under a cloud because all its money printing that they’ve been doing. The Japanese central bank has not just bought all the bonds, they’re buying stocks. They’ve bought a huge number of stocks, ETFs they buy, ETFs in Japan. So it’s very good insight. I don’t know what they’re going to do.
Everybody should certainly have reserves in other countries, in other assets and in other places, there’s no question about that.
Anderson: It seems like a central bank bubble, and bubbles pop.
Rogers: America’s first two central banks disappeared, for a variety of reasons. This one I hope will disappear too, because they’re making such horrendous mistakes that we will get rid of this central bank. Now a world without central banks has its own sets of problems, but these central banks are making the world much, much, much worse, so we would better off with no central banks rather than these central banks. Then we can start over again.
Anderson: Great, well thank you so much for your time. It’s really nice to meet you. Take care.