America’s economic crisis is not over. Social unrest and food shortages are on the horizon. And look out for a pared-down, more powerful European Union.

March 19, 2010
By Ron Fraser
The Trumpet

On March 13, famed investor Jim Rogers gave an exciting interview with King World News. Here are some paraphrased highlights.

Photo: International investor Jim Rogers believes we could have a much smaller European Union someday. (Getty Images)

With the United States and the European Union in economic trouble and showing few signs of recovery, the whole world can’t help but be affected. China’s economy is a bit of a dichotomy. Some aspects of the economy are in a major bubble that is still inflating, especially coastal real estate. However, some sectors, like those dependent on exports to America, are struggling.

U.S. investment bank Goldman Sachs is getting bad press for its role in helping Greece hide its bad debt. Along with Greece, many other countries, such as Italy and France, are also keeping two sets of accounting books. The official set is doctored so that the countries can comply with the rules of eurozone membership.

Although Greece is in the spotlight right now, America keeps two sets of accounting books too. You can look back at any period of American history and find many, many cases of phony bookkeeping, both at the government level and corporate level. “This is just the way the world has always worked.”

However, you can’t keep hiding financial problems forever. When these countries start to collapse, voters will be furious—and justifiably so. People are already very unhappy in California, Virginia, New Jersey and elsewhere. If things keep getting worse, social unrest will escalate. History shows that when standards of living dramatically fall, social unrest results.

Some countries like Iceland and Latvia have already collapsed. If nothing changes we will see the same thing in America within the next decade. Some smart people whom Jim Rogers admires insist that America will default on its debt within the next couple of years. Default will occur at the city level, the state level and the federal level.

America is not the country it was in the 1930s. The safety valves that have existed in the past are no longer there. America has gone from the world’s largest creditor nation to the largest debtor nation in history. Today we have much more of an entitlement, “you owe it to me,” mentality, and people’s work ethic has greatly deteriorated. People like this are much more likely to be unhappy and try to do something about it.

Protectionism is flaring up and trade wars are looming. These things helped cause the Great Depression.

High energy prices are here to stay. The experts know that known reserves are declining at a steady rate. In 25 years there will be no oil for anyone at any price. There could be ups and downs in the price along the way, if for example the UK goes bankrupt. In a decade, the price will be much, much higher though.

The pound sterling’s outlook is not good. North Sea oil is drying up. The UK has huge, huge debt. The City of London financial center is badly damaged and politicians are trying to kill the goose that laid the golden egg by increasing taxes so much that it will drive out the remaining banks. In a few years we will look back and be shocked at how far the pound has come down.

The euro, although in trouble, will most likely survive its current stresses. They will either paper over the problem, which will cause a sigh of relief, or they will let Greece default, which will show investors that Europe wants a sound currency.

Longer term, however, the euro, in its current form, will not survive. The eurozone has expanded too much too fast. Most of the countries do not bring much to the party. As things get tougher, the odds are that some countries will leave the eurozone.

The EU, however, is a fabulous concept. The world desperately needs the euro, or something like it, because the dollar is such a flawed currency.

Conceivably we could have a much smaller European Union someday. “If they had an EU of 6, 8, 10 countries, it could be a wonderful entity.” Built on that foundation, the euro could then expand organically.

It is hard to say whether Europe or America is in worse shape today. In Europe, some countries are still net creditors to the world, others are debtors. Similarly, in America, some states are technically bankrupt, while others are not in as bad as shape. There are some states in America that are in better shape than some countries in Europe, and vice versa.

Economically, America’s leaders must think the “tooth fairy is going to save us all” because they continue to ignore reality. “Eventually the market swamps people who deny reality. And they collapse quickly and suddenly.” Oftentimes the crisis begins where nobody is expecting it. Maybe it will be California, or New York, but maybe it will be State X that breaks the camel’s back and affects everyone.

Throughout history, things have not gone well for countries that have found themselves in debt problems as big as America’s. At best they move sideways for a while, before they fall. “Look at the numbers. There is no way that America can ever pay off its debt. … It is just physically, arithmetically, mathematically impossible … without some kind of total collapse first, and then you just default.” Anybody who sits there and denies reality is going to get swept away, just like a tsunami.

Two bubbles that could eventually pop are Chinese coastal real estate and long-term U.S. treasuries.

Another potential crisis brewing is a food shortage. There is a shortage of farmers around the world, not to mention fertilizer, seeds and farm equipment, especially tractor tires. Food prices are unbelievably depressed.

You can listen to an audio of Jim Rogers’s King World News broadcast here. http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/3/13_J...

http://www.thetrumpet.com/index.php?q=7049.5589.0.0

http://standeyo.com/NEWS/10_Economy/100324.Jim.Rogers.html

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