Jim Rogers is flagging higher interest rates and inflation persisting for longer, in a backdrop of exponentially growing US public deficit, which is becoming challenging to monetize. Jim Rogers sees ongoing problems with the US, due to record-high debt. 

Jim Rogers is known for being an opponent of debt

The debt in the US at the government level and private levels has risen to its highest in world history. The US national debt is ticking towards 32 trillion US dollars, according to the debt clock.

“So we are going to have problems. We had big problems in 2008 because of too much debt,” he said.  

“Since 2009, the debt has skyrocketed, not just in the US but everywhere 

Standby for hard times ahead, according to Jim Rogers. Next time we have a problem, it will be horrible,” he added. 

The banking liquidity crisis could worsen as Jim Rogers is flagging higher interest rates

“Jim Rogers sees ongoing problems with the US, due to record-high debt”

JIM ROGERS

Jim Rogers’s view on the banking crisis

“When there is a long period of prosperity, banks get excited. It has happened throughout world history,” he said. 

They get overconfident, believing themselves smart, so they start lending to making loans they would not make.

That is what is happening in the US with SVB, they got very excited and thought they were smart. 

People in Silicon Valley think they are smart, they get carried away, and lower their standards thinking everything is OK. That has always led to problems throughout history,” he said.  

But the reality is that SVB banking executives believed that buying long-maturity treasuries did not pose default risks. The Fed has the almost divine power to create US dollars, the world reserve currency, then loan them to the US Treasury so that it can service the national debt.  

“When there is a long period of prosperity, banks get excited. It has happened throughout world history”

JIM ROGERS

So SVB executives acted rationally during negative and zero-interest rate policy and bought long-maturity treasuries yielding slightly above 1%. 

The ECB implemented a negative interest rate policy NIRP where the central bank changed banks for holding funds overnight. So, NIRP and ZIRP caused a global rush for US treasuries, considered a haven asset to park funds. Foreign banks and pension funds bought perceived safe haven treasuries, not realizing the maturity risk associated with holding long-maturity treasuries in periods of high inflation.

But two Black Swan events in as many years, 2020 to 2022, the pandemic and subsequent money printing (currency debasement), the Russian invasion of Ukraine, which created higher global energy and food commodities, sent inflation sky-high.

“The polarity in economics and living standards is contributing to greater political polarity. It is also leading to reduced trust and confidence in government, financial institutions, and the media, which is at or near 35-year lows” – Ray Dalio

The Fed’s attempt to contain inflation with consecutive rate hikes in 2022 pricked the everything bubble wiping off 30 trillion dollars in asset prices. Safe haven treasuries had their worst year in history, worse than the great depression. Here comes the zinger; treasuries are the collateral underwriting the entire Western banking system. So as conservative investors banks, pension funds, and insurance companies piled into treasuries when yields were around 1% when central banks were implementing NIRP and ZIRP. Today, their treasury portfolio holding could be sitting on losses anywhere between 30 to 40%, bearing in mind the 10-year treasury is yielding 3.6%, at the time of writing. Treasury prices and their corresponding yields move in the opposite direction.

So if a bank or an insurance company, or a pension fund needs to sell its treasury portfolio assets today to meet its obligations, it will realize huge losses. When SVB deposits were liquidating their accounts to buy short maturity treasuries, say six months treasuries which were perceived to be better than money in the bank, for the higher yields that created a liquidity crisis at the bank. Fear led to a bank run and the eventual collapse of the bank. 

What happened at SVB is not unique, as the crisis is in the treasury market where maturity risks with long-maturity treasuries could lead to contagion and the mother of all global credit squeezes.  

“If we start having problems in the US we will see contagion” – Jim Rogers

Jim Rogers is flagging higher interest rates where treasury maturity risks could trigger global financial contagion

“If we start having problems in the US we will see contagion. Credit Suisse had problems, and all of these things snowballed, what happens in one country affects others, maybe not directly, not in the same week. We are all interconnected these days, which will lead to more problems. You should be worried,” he said. 

Inflation is likely to worsen, Jim Rogers is flagging higher interest rates in the long term, the lower interest rate in the short term 

“Fed thinks they have solved the inflation because oil and grain prices are down and don’t want to cause more economic problems, and we will see a slowdown in interest rate increases in the US for a while,” he said. 

“In the 1980s, 70s we had this problem. Interest rates in the US on short-term treasury bills was 21%, which shows you how bad it can be.

The inflation problem is going to be worse this time,” he said. 

“So interest rates will have to go very high, not this week, not this month,” he said. Indeed, if the Fed hikes too fast, it will blow up the treasury market, destroy the collateral, and trigger bank runs, as we have seen.   

“Before this is over we are going to see high-interest rates everywhere.

Eventually, we will see much higher interest rates,” he said. 

He believes the market will be corrected in 2022, and before it is over we will have a worse correction later in 2023

“At some point, central banks will stop raising interest rates, we will have a big rally,” he said.  

“That will probably be the last big rally for a long time when everyone thinks everything is okay,” he said. 

“But inflation will come back in a big way which means interest rates will go very high 2024-2025,” he added. 

Jim Rogers is flagging higher interest rates, so where does he invest 

I would buy Chinese stocks instead of India because China is down a lot and India is strong. He sees opportunities in agriculture, which has been depressed for decades.

He is looking to buy more energy on the dips as reserves continue to decline. He is also looking to buy more precious metals on the dip.