‘Much bigger than 2008…’: Jim Rogers has some grim news for investors

Investment guru Jim Rogers feels the current global banking turmoil is not over yet and can snowball into a much bigger crisis than the one in 2008 as debt levels have skyrocketed across the world.

In an exclusive interview with Moneycontrol, he also flagged the issue of inflation and cautioned that interest rates will go much higher before central banks begin the easing cycle.

Drawing on lessons from history, he said financial crises usually begin as isolated incidents.

“If you go back to every previous financial crisis, they usually start with a small place or an out-of-the-way place. And then a few months later, we are having serious, serious problems. So this is not over yet,” he remarked.

Global markets were whiplashed recently after the sudden collapse of Silicon Valley Bank, Credit Suisse and some other lenders sparked fears of a wider contagion.

Governments have rushed in to protect depositors and quell the panic, which has helped restore investor confidence to some extent. But there are still strong undercurrents of nervousness, as evidenced by the hammering Deutsche Bank shares suffered last week.

Also read: Regulation can’t prevent the next financial crisis

“We had a problem in 2008 because of too much debt in the world. Since 2008, the debt everywhere has skyrocketed, the debt is gigantic now. So the next time we have a problem, it's got to be very, very bad, because the debt has gone up so very, very much,” Rogers added.

Elaborating on the issue, he said countries like India and the US have high debt levels currently. “America is the largest debtor nation in the history of the world.”

Even China, which was not so indebted 25 years ago, has a lot of debt now.

“So this is a serious problem. That can be a very, very bad problem when it hits all of us. We had some banks go bankrupt last week, next time around, we're going to have more. If you remember 2008, it started in 2007 with some small banks, and the next thing you know, we had Lehman Brothers, and everybody knew there was a problem. That's the way these things always work,” he noted.

Experts are divided over whether the current turmoil is comparable to the Global Financial Crisis of 2008, but Rogers was unequivocal on his stance.

“…we've always had problems every few years, throughout history all over the world, we will have them again. And the next one has to be very bad because the debt is so high all over the world. I don't like saying it, but I have to deal with facts,” Rogers said.

To a question on the interest rate trajectory, he hinted that it was premature to expect rates to moderate soon.

“Interest rates were 20% on government bonds in the United States in 1980s, because the situation was so bad… The inflation situation is probably worse this time,” he noted.

“I will tell you that interest rates are going to go very high before this is over, not in this month, not in March 2023, but before this is over,” Rogers said.

Addressing the debate around ‘soft landing’ for the US economy amid the Federal Reserve’s unprecedented rate hikes, he quipped that he has never seen a soft landing yet.

“Central bankers and politicians are always talking about soft landings. I've never seen one yet. I've heard lots of talk about soft landings for decades, but they've never actually happened…

“… people are starting to think well, maybe things are okay, as they always think. And then, you know, down the road, inflation will get worse. Again, this is not over yet. It never has been over after a few interest rate rises,” he pointed out.

However, he had some words of advice for investors.

“If you go back to previous big bull markets, bear markets, when things collapse in price, even silver and gold collapse for a while, then of course silver and gold turn around, and usually are one of the first things to go up again. And that will happen again,” he said, adding that Indian investors are the most aware about gold and silver being a store of value.

He added that he doesn’t expect 2023 to be a particularly bad year for markets, but “2024 will be a much worse year than we've seen in a long time.”

So should investors be scared right now?

“You know, I'm not panicking yet. I just want people to start being worried because debt is building up everywhere, especially in the US and Japan and in Western countries, developed countries. And that is always the serious problem.”