Handelsblatt Interview A Warning on Debt and Currency Bubbles

The legendary investor Jim Rogers spoke to Handesblatt about why debt will trigger the next financial crisis.
Jim Rogers.

Jim Rogers, the American investor who is seen as one of the best analysts of the global economy, warned that Donald Trump’s trade policies and spending promises could put the United States further into debt.

In an interview with Handelsblatt, he said Mr. Trump’s pledges to cut taxes and to rebuild American infrastructure made sense, but it was not clear how it would be paid for.

“The problem however is: where is the money coming from? America is the largest debtor nation in the history of the world, so that could well cause problems,” Mr. Rogers said. “Also he has vowed that he will put huge tariffs on Mexico and China and other places. Now trade wars have always led to disaster. Trade wars have always led to bankruptcy and sometimes to real war. Nobody has ever won a trade war.”

Mr. Rogers, who spoke to Handelsblatt during a visit to the United States from Singapore, where he now lives, said he believed Mr. Trump’s advisers did not believe in protectionist policies, but they may not be able to persuade their boss to abandon the idea of trade wars.

“His advisors, you know, the guys he has been appointing are not trade war kind of people. They understand. But they’re not the boss. Trump is the boss.”

He added that he believed the U.S. dollar would continue to rise, especially if Mr. Trump found a way to make American companies bring around $3 trillion they are holding abroad back to the U.S.

“I expect the dollar for various reasons to go much higher. I expect the dollar to get overvalued. The dollar could turn into a bubble depending on how bad the turmoil is in the rest of the world and whether Mr Trump can bring the $3 trillion home,” he said.

He added that low interest rates in other countries, and volatile global markets, would also keep the dollar strong but their confidence in the currency could be misplaced.

I don’t expect the euro to survive as we know it. But I hope that some euro survives, I hope a sound euro survives, because the world needs something to compete with the U.S. dollar. Jim Rogers, Investor

"I expect serious turmoil in the markets in the next year or two. When there is turmoil, people look for a safe haven. And they think the U.S. dollar is a safe haven. It’s not. America is the largest debtor nation in history. Since people think it’s a safe haven, they will put money there. That's the main reason I own U.S. dollars because I know the turmoil is coming," Mr. Rogers said.

“People rush into the dollar and then of course – as I said – that will make it overpriced eventually and then if Trump does something with the $3 trillion as he plans, then the U.S. dollar could turn into a real bubble. And I hope I am smart enough to sell.”

Mr. Rogers warned that the next global financial crisis would again be triggered by debt: both government and banking loans.

“Last time around in 2008 was a huge problem, as I said, because of too much debt. The debt is much, much, much higher now everywhere. And if you have a strong dollar to add to that problem, it’s great for people who own dollars and I own a lot of dollars. But it’s not going to be good for the world,” he said.

Mr. Rogers moved his family to Singapore in 2007, in the firm belief that a deep understanding of Asia and of Mandarin was necessary for any serious investor. But he warned that even China would have problems if the global economy tanked.

“Some parts of the Chinese economy are going to do well no matter if America falls into the sea or Europe disappears, he said. “But China is now the largest trading country in the world or at least one of them, so if their customers have problems and they have debt, some of these companies are going to disappear, they are going to go bankrupt.”

He did however suggest that commodities could enter a bull market, even if demand falls.

“You could still have a bull market in commodities with declining demand if supply goes down faster. There are many cases in history where supply has gone down faster than demand, so you still had a bull market. That’s what I expect now, because supply has been cut back dramatically in so many commodity products that I would suspect that you will have at least the end of the decline if not the absolute beginning of a bull market,” he said.

He also warned that Brexit, and the anti-E.U. sentiment in several other countries will put heavy pressure on the euro, forcing some fundamental changes.

“I don’t expect the euro to survive as we know it. But I hope that some euro survives, I hope a sound euro survives, because the world needs something to compete with the U.S. dollar. The U.S. dollar is a very, very flawed currency. And at the moment there is really nothing on the horizon to compete with the dollar. The renminbi someday perhaps but the renminbi is not even convertible right now,” he said.

 

Ingo Narat is an editor with Handelsblatt's finance section. Matthias Streit is a correspodent for Handelsblatt.To contact the authors: [email protected] and [email protected]