“We’re not just going to see mid-sized banks go under in the next few months, we’re going to see a whopper, we’re going to see a big one, one of the big investment banks or big banks,” says Kenneth Rogoff, who is an economics professor at Harvard University and was the International Monetary Fund’s chief economist from 2001 to 2004.
Large U.S. Bank Collapse Ahead
Yahoo! News
August 19, 2008
The worst of the global financial crisis is yet to come and a large U.S. bank will fail in the next few months as the world’s biggest economy hits further troubles, former IMF chief economist Kenneth Rogoff said on Tuesday.
“We have to see more consolidation in the financial sector before this is over,” he said, when asked for early signs of an end to the crisis.
“Probably Fannie Mae and Freddie Mac — despite what U.S. Treasury Secretary Hank Paulson said — these giant mortgage guarantee agencies are not going to exist in their present form in a few years.”
Rogoff said the U.S. Federal Reserve was wrong to cut interest rates as “dramatically” as it did. “Cutting interest rates is going to lead to a lot of inflation in the next few years in the United States.”
Legendary Wall Street investor and commodities guru Jim Rogers is back on the prowl and seems to be in agreement with Rogoff’s stunning assessment, as seen during an exclusive interview with Money Morning this week. I have to admit, every time I see Jim Rogers on television sporting his little bowtie during interviews, I just want to reach through the screen and give him a great big big. His direct, no nonsense and no holds barred way of speaking somehow reminds me of a crabby but wise grandfather.
Exclusive Interview: Jim Rogers Predicts Bigger Financial Shocks Loom, Fueling A Malaise That May Last For Years
Money Morning
August 19, 2008
Jim Rogers believes that “America had such a magnificent and gigantic position of dominance that deterioration will take time … it takes a lot of hard work by a lot of incompetent people to change the situation.”
The U.S. financial crisis has cut so deep – and the government has taken on so much debt in misguided attempts to bail out such companies as Fannie Mae (FNM) and Freddie Mac (FRE) – that even larger financial shocks are still to come, global investing guru Jim Rogers said in an exclusive interview with Money Morning.
Indeed, the U.S. financial debacle is now so ingrained – and a so-called “Super Crash” so likely – that most Americans alive today won’t be around by the time the last of this credit-market mess is finally cleared away – if it ever is, Rogers said.
The end of this crisis “is a long way away,” Rogers said. “In fact, it may not be in our lifetimes.”
Some key points Rogers stated:
- U.S. Federal Reserve Chairman Ben S. Bernanke should “resign” for the bailout deals he’s handed out as he’s tried to battle this credit crisis.
- The U.S. national debt – the roughly $5 trillion held by the public– essentially doubled in the course of a single weekend because of the Fed-led credit crisis bailout deals.
- U.S. consumers and investors can expect much-higher interest rates – noting that if the Fed doesn’t raise borrowing costs, market forces will make that happen.
- And that the average American has no idea just how bad this financial crisis is going to get.
The entire interview is worth reading through and here are a few snippets.
(Q):What would Chairman Bernanke have to do to “get it right?”
Rogers: Resign. (Hah! Love it.)
(Q): Is there anything else that you think he could do that would be correct other than let these things fail?
Rogers: Well, at this stage, it doesn’t seem like he can do it. He could raise interest rates – which he should do, anyway. Somebody should. The market’s going to do it whether he does it or not, eventually.
The problem is that he’s got all that garbage on his balance sheet now. He has $400 billion of questionable assets owing to the feds on his balance sheet. I mean, he could try to reverse that. He could raise interest rates. It would cause a shock to the system, but if we don’t have the shock now, the shock’s going to be much worse later on. Every shock, so far, has been worse than the last shock. Bear-Stearns [now part of JP Morgan Chase & Co. (JPM)] was one thing and then it’s Fannie Mae (FNM), you know, and now Freddie Mac (FRE).
The next shock’s going to be even bigger still. So the shocks keep getting bigger because we kept propping things up and this has been going on at least since Long-Term Capital Management. They’ve been bailing everyone out and [former Fed Chairman Alan] Greenspan took interest rates down and then he took them down again after the “dot-com bubble” shock, so I guess Bernanke could try to start reversing some of this stuff.
(Q): Earlier this year, when we talked in Singapore, you made the observation that the average American still doesn’t know anything’s wrong – that anything’s happening. Is that still the case?
Rogers: Yes.
(Q): What would you tell the “Average Joe” in no-nonsense terms?
Rogers: I would say that for the last 200 years, America’s elected politicians and scoundrels have built up $5 trillion in debt. In the last few weekends, some un-elected officials added another $5 trillion to America’s national debt.
Suddenly we’re on the hook for another $5 trillion. There have been attempts to explain this to the public, about what’s happening with the debt, and with the fact that America’s situation is deteriorating in the world.
I don’t know why it doesn’t sink in. People have other things on their minds, or don’t want to be bothered.
(Q): What do you think [former Fed Chairman] Paul Volcker thinks about all this?
Rogers: Well, Volcker has said it’s certainly beyond the scope of central banking, as he understands central banking.
Volcker’s been very clear – very clear to me, anyway – about what he thinks of it, and Volcker was the last decent American central banker. We’ve had couple in our history: Volcker and William McChesney Martin were two.
You know, McChesney Martin was the guy who said the job of a good central banker was to take away the punchbowl when the party starts getting good. Now [the Fed] – when the party starts getting out of control – pours more moonshine in. McChesney Martin would always pull the bowl away when people started getting a little giggly. Now the party’s out of control.
(Q): This could be the end of the Federal Reserve, which we talked about in Singapore. This would be the third failure – correct?
Rogers: Yes. We had two central banks that disappeared for whatever reason. This one’s going to disappear, too, I say.
[/end snippet]
With my limited broke-ass financial knowledge, I do believe we’re in a painful but necessary cleansing period of massive global deleveraging and (unfortunately) tremendous inflationary pressure. When the system is corrupt, it becomes prudent for people to embark on personal wealth preservation protection and with current shoddy interest rates, savers continue to suffer as we struggle to find creative ways to protect purchasing power.
My generation may experience a radical financial transformation from the insatiable consumerist lifestyle we’ve grown so accustomed to.
=^..^=
