The Crisis is Not Over! a Conversation with Legendary Investor Jim Rogers

Hi everybody! It's Stefan Molyneux from Freedomain Radio. Hope you're doing well. I am here with investor extraordinaire, author, and ardent motorcyclist, I guess is a fair way to put it, James Rogers. Thank you so much for taking the time. I'm delighted to be here Stefan. Good morning. I guess, it's "good evening" to you. Indeed. So, it would appear, you know, just judging from the video, that you have fled the colder climates of North America and you have relocated to some place that makes a lot more climate sense, and I would dare to argue, economic sense as well. Do you feel that you are genuinely fleeing the Titanic, the sinking ship of western statist democracies, or is that the idea behind the move? Well, I am in the tropics. You're right. You can look behind me and you can see. It's bright sunshine here. I live in Singapore which is pretty close to the equator where it's—in Singapore, it's always either hot and hot and rainy, and if it's rainy, it's not going to rain long. That's not why I'm here though. I'm here because I want my children to grow up speaking Mandarin and knowing Asia. In my view, the best preparation I can give them for the 21st century is to know Asia and to speak fluent Mandarin, so that's why I'm here. It's pretty simple. Now, you pointed out, of course, that China is about, what, one-tenth the size of the US economy, but going down the road you've talked a lot about the death of the US dollar, the rise of emerging economies, particularly China, and, I know you're not quite so bullish on India. I mean...this seems like an incomprehensible thing to those that are used to the late Roman Empire of the West, that this could be eclipsed by China. What's your reasoning behind it? Well, first, it's not one-tenth the size of the US. It's one-tenth the size of the US and Europe. China's done a great job, but still, if you through in Europe, and America, and Japan it's over ten times bigger than the Chinese economy. China cannot save it no matter what a good job or a bad job they might do. Yes, looking to the future, the US is certainly in decline. It's certainly relative if not absolutely the US is the largest debtor nation in the history of the world and the debts are getting bigger and bigger and bigger every day, as you well know. China, in the meantime, is the largest creditor nation in the world, and that's getting bigger and bigger every day. So, I don't like saying it. I'm an American citizen, an American voter, American tax payer. Look, one has to deal with reality or one will not survive. I certainly don't like saying that, but look out the window. You'll see that the US is certainly in relative decline. I think that's inescapable and tragic. But you endorsed Ron Paul for president, I would assume because, you know, too big government as it always does throughout history leads to decline in free market transaction in the accumulation of wealth and capital because it scoops up so much and bars so much productive trade. At that time, I guess, in endorsing Ron Paul, you must have felt that there was some kind of political solution. Do you think that is possible for America to turn itself around through politics? Well, Ron Paul was one of the few people in Washington who understood what was happening. He understood the economy. He understood the world. Again, I don't like saying it. It's a shame that we have over five hundred—five hundred thousand people in Washington who don't have a clue about what's going on in the world. Yes, there's a possible political solution. It's only going to come after a crisis or semi-crisis. No country in the world has gotten itself into this kind of position. To suddenly just wake up and say, "Oh gosh, why don't we change things?" They only do that after a crisis or a semi-crisis, and the crisis can be a war. In many ways, countries get slapped in the face and then start to change things, but never have I heard a country which has said, "Well, okay. We made terrible mistakes for fifty or sixty years. Now, let's start over. Let's bite the bullet and start over." It doesn't happen. Well, but isn't China an example of one of those countries. I mean, they came out of totalitarian dictatorship of communism, and they're starting to, of course, for the last what twenty, twenty-five years they've been heading toward a free market. I mean, if they could do it... Again, it was easier with a central command-and-control economy without a dependent population, but they could do it. Would you not argue that it can happen in America too? Well, good point, but a couple of differences. China had been in decline for three or four hundred years when Deng Xiaoping in 1978 said, "This is not working. We got to try something new." But, China wasn't a debtor nation and an overextended nation at that time. Just, you know, poor, undeveloped nation that said, "Let's try something different." That's a little different from say the UK in 1918 or the US in 2014. But, that is a good point. China did change and it did turn itself around and we know the rest of the story. Yeah, hopefully we won't need four hundred years of dictatorship to provoke that kind of beneficial change in the West. That would be another Dark Ages from which we may not emerge which would be particularly tragic. Now, what is your prescription? You know, because in the prescription is usually contained the diagnosis. Right? So, what is your diagnosis of the central problems with the US economy—I guess, Western economies as a whole and what would your solutions be? Well, that's pretty simple at the moment. To repeat, the US is the largest debtor nation in history of the world. The debt's getting higher and higher. I mean, there are plenty of other huge debtors in the whole developed world. We've all got kind of a wonderful thirty or forty years, but it's all been built on debt, and eventually somebody has to pay the piper. The US debt has skyrocketed. The economy has grown some. Let's just look at the last ten years. The economy has grown some in the US, but the debt has gone up something like ten times as much as the economy has grown. So yeah, give me a trillion dollars and I'll show you a fabulous time Stefan. I mean, that's easy if you're playing with other people's money, but eventually that runs out. And, I'm not sure when it's going to run out in the US, I would suspect certainly in this decade, if not before. But, it's going to end. Something you said recently in an interview really, really struck me James, which was you said that we've become sort of afraid of failure. Like, we've become afraid of banks failing. We've become afraid of even entire industries failing. And, in the past we used to be a lot more rough and tumble, I would argue as a culture. Failure was an acceptable part of life, an inevitable part of life. And now, everyone runs sort of like stuck pigs to the government for bailouts and so on. Do you think there's been a big cultural change with regards to our perception of the value of failure? I mean, things that I've failed at in my life have been some of the most instructive things that have ever happened. Well, most people do learn from failure. I mean, unfortunately, it's a way a lot of us have to learn things. I would prefer not to have to learn that way, but you're right. Some of the most instructive things are when you fail and you have to deal with the failure. The way the system is supposed to work and the way it's worked for most of American history, most of world history, is that when people fail, confident people come in take over the assets, reorganize, and start over. What we're doing in America and some other countries as well is, you know, we're taking the assets away from the competent people and giving them to the incompetent people and saying, "Now you compete with the competent people with their assets with their money." This is hopeless morality, not that politicians care about morality, but it's also bad economics as Japan has proved. You know, they did this in the early nineties and they've had two lost decades and they're into their third lost decade. Yeah, with catastrophic effects on things like birthrates and entrepreneurial spirits, and so on, it's wretched I think then, and no way of turning it around.immediately it seems. Then, they just commit to printing as much money as they—What is it that you said? They'll stop printing money when they run out of trees. Yeah, that's what's going on in Japan, but not just Japan, in many countries of the world right now, and this is all going to end very, very badly. Right. Now, you've talked a lot about how the financial sector of the economy—you don't think has a very rosy future and that the world—at that the meek and the farmers shall inherit the earth. What are your arguments behind that because it seems like that's the place you want to be when you want to make a lot of money these days? Well, it certainly has been for the last year or so, again because all of the money which is being printed, it certainly is not true of the past ten or twelve years, and as you probably know, it's not easy getting a job in finance these days with the people who have held on and then many people have lost their jobs in finance in the last decade or so, and in my view, it's not going to be easy going forward. You know, we've had long periods in history when the financial-types were in charge, followed by long periods when the producers of the real goods were in charge, and followed again by the financial-types. When, you know, the fifties, sixties, and seventies on Wall Street and the city of London they were backwatered. They were wage slaves. Then we had a great bull market in the eighties and nineties et cetera. In 1958 in America, five thousand people got an MBA. Nobody in the rest of the world got an MBA. Last year in America, two-hundred thousand got MBAs, and tens of thousands in other parts of the world got MBAs. So, now you have a huge glut of competition at a time when the investment world, the financial world is hugely leveraged. In the sixties or seventies, there was virtually no leverage in the financial community. Now, there's staggering leverage, and it's a time where governments don't like us. You know, every time you turn around there's a new regulation, or control, or tax on the financial-types. So, you have gone from no competition, no leverage and being loved by politicians to being despised by politicians, huge leverage, and massive competition. That's not the prescription for good times. Yeah, some people do extremely well. Some people in the fifties, sixties, and seventies made fortunes in finance, but it's not going to be easy. The wind is in your face now, not at your back. Contrast that with farming, for instance. More people in America study public relations than study agriculture. The average age of farmers in America is fifty-eight, in Japan it's sixty-six, et cetera et cetera. Farmers are dying and retiring. There are no young people coming in and agriculture's got to be a great place, or we're not going to have any food at any price. If agriculture doesn't become exciting, we're not going to have any farmers. We're not going to have any food, and we're going to have a pretty dismal world. What is more likely to happen is agricultural prices will go up, farming will become an exciting place to work, and guys will see the farmers driving Lamborghinis, and they will say, "Stock brokers are driving tractors. The farm is sprouting Lamborghinis. Let me go work on the farm", and you'll have another shift. It's happened throughout history. Nothing unusual about it, except people forget. They don't read their history. They think that the world started the day they got out of college. Unfortunately, it didn't start the day they got out of college. The world's been going on for centuries. Well, and of course, the government and the associated hangers-on and lobbyists are all working as best as they can to prevent change. You know, everybody at the top who's making all the money wants to glue the Lego pieces together, so to speak, so that nothing changes. You can stave that off, but when the damn breaks, isn't it usually at or all the worse? Well, that's why in 2008 when the damn started breaking, you know, they all called Washington. The plumbers in Oklahoma called Washington, but nobody paid any attention. So, when the head of the major banks call Washington, the head of the Federal Reserve takes the call. The Secretary of the Treasury takes the call. And they said, "You've got to save us. It's the end of western civilization." Well, you know, what do they know? They're bureaucrats, most of them, so they took the call. They said, "We've got to save western civilization. We got to save the big banks on Wall Street." And, they did it. You know, they bailed out the incompetent people who should have failed to let new people come along and rise. You know the rest of the story. That's one reason the debt has gone through the roof. It's very interesting in today, the new head of banking regulation in Europe, to my astonishment, said, "You know, we have to let people fail if things go wrong." Now, that's mind-boggling to me who has been fussing all this for years. Suddenly, the Europeans are saying what I and others have said, "Let them fail. Let them fail. It won't be the end of the world. It will be good for the world." But in America, we don't play that way. We don't want to let them fail, unless it is somebody who is insignificant. We don't mind them failing, but if our contributors and friends fail, we have to bail them out. Well, of course, we got to have sympathy for the politicians. It's much harder for them to get campaign contributions from a lot of smaller companies when they can get campaign contributions from the heads of some very large companies. It's less travel for them, less parties... You know, it's very, very concentrated and efficient. So, obviously our heart goes out to whatever we can do to make political campaign funding and fundraising easier. I think we're all in the same boat, and the charity for that is open-hearted, warm, and wonderful, and savagely it's going to take us all down with it. Now, most of the people I talk to in the investment world are, you know, are stock and bond people, but you are bullish on commodity trading. I wonder if you could talk a little bit about that—Most of my listeners are less familiar with that—and why you think it's not as terrifying as some people think. Well, I own stocks. I insure bonds. I invest in everything... currencies... the whole works. I happen to be optimistic—we just talked about agriculture, for instance. I'm very optimistic about agricultural products for the reasons I mentioned before. Alright, and we all know what agriculture is. Every one of us knows what sugar and wheat and copper,—we know what this stuff is—gasoline. None of us have a clue about Toyota or IBM. I mean nobody—the chairman of IBM cannot fully understand IBM. He's got thousands—tens of thousands of employees, products, competitors, et cetera, governments to deal with. Cotton's pretty simple. There's either too much cotton or too little cotton. Now, that does not mean it's easy. Doesn't mean it's easy at all to figure out if there's too much or too little, but it's a lot easier to do that than it is to figure out what is going to happen to IBM or Toyota or some of the major companies in the world, or even bonds for that matter. So, I have said to you before that agriculture prices, for instance, have been going down for thirty years on an absolute and a relative basis. So, agriculture (garbled)... Either we're not going to have any food or the price of agriculture is going to go up. I happen to think it is going to go up, so I own agriculture products. Right, right. There are many ways to play. You can buy shares in agricultural countries. You can seed companies, tractor companies... many ways to play, but for me the best way to play is to own the stuff itself. Right, right. One thing that you wrote about that really struck me was you said that basically when you first learned about markets and investing it—I think I've only heard that kind of prose from somebody who's fallen in love with a beautiful woman—(laughs). Why do you think it was so attractive for you, and why did it become such a passion for you? Was it the first time you saw it or did it grow on you? Was there somebody who inspired you? How did that come about? Well, I'd always had a huge interest in the world, in what was going on in the world. That was my main passion. I knew nothing about Wall Street. I knew it was in New York somewhere. I knew something bad happened in 1929, but that's all I knew. I didn't know if there was a difference between a stock and a bond back in those days. But then, I went down there by accident, got this job, and I suddenly realized, hey, they'll pay me and they'll pay me a lot of money to understand the world and know what's going on in the world. So, it was instant love. This was what I'd been looking for. I didn't know that there was a job that would pay me--that would reward my passions. I found one and have been there ever since. Yeah, it struck me. It is, I think, one of the basic things that all civilized people need to know is something about the market. I don't have to know a lot about how to sail a ship because I'm not over an ocean at any particular time in my life or far out from land. But, we all live in this economy and we all vote and navigate this and I think to understand this—and lord knows that the government schools aren't going to teach us a whole lot about it, but—I think that there's a really good case to be made, that it is, you know, like some basic literature, some Bible, some Shakespeare... It has to be in the library of a reasonably intelligent, civilized person to know about this market that dominates and dictates so much of our decisions and lives. Well, of course. I mean, we all, if nothing else, we go to the grocery store. We buy fuel oil. We do everything. The more you know about it, obviously, the better off you're going to be able to navigate the situation It doesn't mean you have to know a professional investor—professional financial-type. It's better if you know what's going on than if you don't know what's going on because then you're going to get blind-sided month after month if you don't know what's going on. Now, of course, you became a father quite—I guess, somewhat recently and you've written a lot about how you want to prepare your daughters—I think they're both daughters—for the future. I'm a relatively new father. My daughter is five. So, of course, as all fathers, I am concerned about the best ways to help prepare her, and I know you got a book out about this at the moment, but share with my listeners some of the things that you think are helpful for parents to get into the heads of their children? Well, I'm trying to teach my children to think for themselves and to be independent, not to believe the stuff that they are fed, whether in school or whatever. I want them to be curious and skeptical. I'm trying to teach them to beware of the boys, because, you know, the boys are not going to be good for them, at least not for a while. So—but the main, I think, for yourself is be skeptical. Be curious. I want them to be curious about the world. And, if I can teach that, and of course to follow their—to find their passions and follow their passions, if I can teach them that then they're set. Well, that's wonderful. And, I certainly appreciate that—you sharing your travel experiences and your experiences with different cultures and your experiences as parents because, you know, money is part of life. Family and offspring are a huge part of life. So, I certainly think you for sharing all of your thoughts about that, and I guess if we can close with something that, you know, may make you quite passionate. I guess we have a new Federal Reserve chairman, Yellen. Have you—do you have any thoughts about her, any predictions about where she's going to head? Do you think she's going to taper-down or what? It's the same stuff. I mean, Mrs. Yellen, She's a wonderful person, but she's been part of this whole madness that's been going on. I just know she fell into Mars and started looking around, and say, "Let's look at this situation with a new eye". She's part of it. She's part of the reason we have this madness going on. So, no, it's not going to change. What's going to go happen now is eventually the markets are going to get scared and go down a lot. Then, Mrs. Yellen's going to panic and say, "Oh gosh, I'm sorry." And, they'll stop. They'll reverse. They'll certainly stop if nothing else, and the markets will breathe a sigh of relief, and they'll rally. Mrs. Yellen, you're going to have to remember, all of these people are academics and bureaucrats. They never had a real job. They can't get a real job. That's why they work for the government. So, it's going to end in a disaster. She doesn't understand any more than Greenspan or Bernanke did. Well, and I think... No. Go ahead. Sorry. I was going to say she helped teach them, you know. They were sitting down there together saying the same things to each other and she's part of it. Right, yeah and it certainly is alarming, whether there's going to be a soft default or a hard default, the basic reality is what mathematically cannot continue will not continue. And, the CBO projections recently with Obamacare, and Social Security, and Medicare, and Medicaid is that even the government says it's bad. And, you know the government is always trying to put a positive spin on things. Look. The situation's getting worse. You should be worried, be careful and prepare because it's not going to be fun when it ends. Yeah, and for—you know when people see, James, so when people see you being interviewed in the future, at some point they may just see me, sort of, over your right shoulder doing some agriculture in this lovely garden you have which, given the climate that I'm stuck in—minus twenty, it seems like a pretty good opportunity. (Laughs) Well, if you don't know how to drive a tractor, I urge you to go and learn because it's going to be important in your lifetime. Well, I appreciate that and thanks so much James. You can go to jimrogers.com to look into more of his books. I hugely recommend it. Thank you for everything that you're doing to educate a somewhat docile planet on some very important stuff. And, certainly, thank you for your time this morning. I have really enjoyed the conversation. Thank you, Stefan. Let's do it again sometime. Thanks. Bye-bye.