Wednesday, March 2, 2016

China now has a lot of debt and could suffer in a slowdown

Midas Letter:    Do you think that there’s a chance that there’s a potential for large political upheaval on a global scale sufficient that governments could be toppled, resulting in a wholesale realignment of the geopolitical order in the current turmoil?

Jim Rogers:    James, it’s not a chance, it’s a certainty. I was going to say a probability, but in reality, you see what happened the last time around: we had governments fail, we had countries fail, Tunisia, Egypt, lots of countries absolutely failed. Iceland failed, we’re going to have more of that and it’s going to be worse next time around, because the debt…James, we had problems in 2008 and ’09 because there were such high levels of debt. Well, the debt has gone through the roof since 2009, all over the world. Even China, which had little debt in 2009 and ’09 and now has lots of debt, they could help rescue the world back then, but now even they have debt. Not as bad as Italy or America or someplace, but even the Chinese have a lot of debt now. So it’s going to be a big mess.

Midas Letter:     Yeah. See, I find that interesting, that, you know, so in this phase – the last time, in 2008, it was small sort of fringe countries that failed, but now we have the largest debt problems in the biggest economies. The G7 is the most debt-ridden and arguably the most susceptible to complete collapse of confidence in their ability to repay debt. That, to me, is really telling. So, how do you see China’s position in all of this to come?

Jim Rogers:    You make a good point. Let me just go back, and you should get out – your listeners should get out of list of the G7 and you’ll see what they say: oh gosh, if those are the best, we’re in serious trouble! Japan, Italy, I mean, these countries all have – America, Britain, they all have huge amounts of debt now. Much higher than 2008. Sorry, go ahead with your next question.

Midas Letter:    I read recently that – Karl Bass was predicting that China was going to see an order of magnitude up to four times greater in terms of losses in its stock market in this current deflationary phase. What do you think China’s position in all of this is economically? How much at risk are they? How much in the driver’s seat are they, because they’ve got so much US dollars in their reserves?

Jim Rogers:    Well I said before that even China this time around is going to be affected, because they’ve got a lot of debt too now. They’re still the largest creditor nation in the world and they’re less a problem then we are, but everybody’s going to suffer; there’s no way, the main culprit is Washington, DC, to repeat what I said earlier. But who cares, because we’re all going to suffer. It doesn’t matter if you’re in Portugal and you’re suffering, if you say well, it’s all because of Washington, you’re still suffering. China’s going to suffer. A lot of the countries – I mean, Japan is in recession, the Japanese government will tell you that. Well, that’s one of their largest trading partners. Much of Europe is in recession. When your trading partners are in recession and having trouble, you have trouble too. So China is certainly going to suffer, and there will be bankruptcies in China. At least the Chinese government has said they will let people go bankrupt; I hope they do, it will be good for China, it will be good for the world, rather than propping up zombies.

Jim Rogers is a smart investor who co-founded the Quantum Fund with George Soros in 1973. By 1983 the fund gained more than 4000 percent.