Friday, October 10, 2008
Jim Rogers was on Bloomberg this morning. When pressed for solutions to the current crisis (rather than critiques of its handling so far), he had some interesting comments.
This discussion really strikes at the heart of the current dilemma - do you try to lessen the impact of the current meltdown in an attempt to insure you'll avoid another Great Depression, or, do you just let markets do what they want to do and then pick up the pieces and start over?
Slower with less pain or fast and painful? Obviously, Rogers favors the latter:
I would tell you what has always worked throughout history and I'll tell you what has always not worked.When asked about letting banks collapse one by one, this reply came:
The Japanese tried this in the 90s, they kept putting band-aids on and they wouldn't let people fail. You remember the term "zombie" companies, "zombie" banks? Well it's eighteen years later and the Japanese stock market is still down over 75 percent. They talk about the 90s as a lost decade.
America tried it in the 70s - they wouldn't let anybody fail. We had one of the worst economic decades in American history - high interest rates, high inflation, a collapsing currency. It didn't work.
Korea in the 90s, took a hit. They had a horrible two or three years but, since then, they've been one of the most rapidly growing economies in the world. The Russians took a horrible hit - since then, they've been one of the most rapidly growing economies in the world.
This is not politics, this is not philosophy. I'm telling you what has worked throughout history and what has not worked throughout history.
Look it up.
Let 'em fail two by two or three by three. I mean, what is this? Banks have been failing since the beginning of time and they're probably going to fail again until the end of time.He also noted that the current recession is going to be the worst since World War II.
The way it's always worked successfully has been, let the incompetent fail and the competent people - banks, mainly in this case - take over the incompetent banks and everybody starts over.
Yeah, you have a very bad year or two but we've had the worst excesses in the credit market we've had in world history. Never before in world history have people been able to buy a house with no money down, and many of them bought four or five houses with no money down and no jobs, and then the bankers were saying, "This is fun, let's do it with car loans, student loans, credit card loans".
We've had horrible excesses -this has to be cleaned out.
The video is in high demand at the moment, so good luck getting it to play.