Posted by: Mathieu | November 4, 2008

America is bankrupt

I read on the rtlZ website some quotes from an interview they had with Jim Rogers (called an ‘investment legend). I had never heard from him and while the quotes might have been taken out of their context I am not overly impressed by his thoughts (see below some of the more particular ones). Probably one of you knows him but I am interested to read what you think of his ‘analysis’.

“Whether oil costs 45 or 145 dollars, it doesn’t matter really. What matters is that with oil, like with many other commodities, supply is decreasing while demand is increasing. In the long run this will result in a considerable increase in prices.”

Rogers has been negative about the United States for a long time. “You should be worried, America is out of control”. The enemies of the United States are currently looking into how to profit from the weaknesses of the United States. When we asked him: Obama or McCain? he answered: “Neither of them. They are both turkeys, they take the wrong decicions.”

Rogers is fiercely against rescue the banks. “That has never worked. Let them go bankrupt. Right now bad-managed banks are saved with money from good banks and from you and me. After that, the failing but nationalized banks are going to compete with the well-managed banks and they gain their market share. Ridiculous. The Bail-out plan is a disaster. In 1929 we had a recession but after the government interfered, it became a depression. You should not interfere, you have to let it blow itself up and start over.”

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Responses

  1. *Snark*

    “Whether oil costs 45 or 145 dollars, it doesn’t matter really. What matters is that with oil, like with many other commodities, supply is decreasing while demand is increasing. In the long run this will result in a considerable increase in prices.”

    It matters a great deal for all sorts of things whether oil costs 45 or 145 dollars. For one, it matters for economic activity (yes, a large part of our economy still runs on oil, though not nearly as much as in the 70s). As for supply decreasing, that is a pretty big unknown (partly because some of he producers don’t publish data on quantity produced) and I doubt the man has any supreme insight into these things.

    I’ll refrain from using the Keynes quote on the long run, but that would be pretty much spot on. It’s simply no use to forecast a certain price without at the same time giving a time at which this price will be reached. Instead he waves his hands and talks about the rather ill-defined long run.

    Rogers is fiercely against rescue the banks. “That has never worked. Let them go bankrupt. Right now bad-managed banks are saved with money from good banks and from you and me. After that, the failing but nationalized banks are going to compete with the well-managed banks and they gain their market share. Ridiculous. The Bail-out plan is a disaster. In 1929 we had a recession but after the government interfered, it became a depression. You should not interfere, you have to let it blow itself up and start over.”

    This has to be the most wrong-headedly simplistic analysis of the Great Depression I’ve read in quite a while. Even staunch classically liberal types like Milton Friedman will not only concede but endorse the view that part of the blame for the Great Depression should be laid at the feet of the Fed which failed to stabilize the money supply instead opting to contract it.

    The failure in this case was not too much government interference but too little. The Great Depression is exactly the kind of stuff you get when you “let it blow itself up”.


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