'It is going to be very, very bad': Legendary investor Jim Rogers says the US debt load is creating a prime environment for a collapse — and warns the next market blow off will be worse than the Financial Crisis' 50% decline
- Jim Rogers, the chairman of Rogers Holdings, thinks the next bear market will be worse than that of the 2008 Financial Crisis — a time when the S&P 500 fell more than 50%.
- Rogers focuses his thesis around the amount of debt currently embedded within the financial system and exorbitant Federal Reserve money printing.
- David Hunter, the chief macro strategist at Contrarian Macro Advisors who's been expecting an 80% stock plunge, touts a similar ideology.
- "So, I worry when the next bear market comes, it's got to be worse than 2008 because the debt is much, much, much higher than in 2008," Rogers said.
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"Then, when the next collapse comes, it is going to be very, very bad."
That's what Jim Rogers, the chairman of Rogers Holdings, said on "Peak Prosperity" in reference to the prevailing market environment.
"In 2008, we had a problem because of too much debt," he said. "Well, since then, Adam [host], the debt everywhere skyrocketed — skyrocketed."
Rogers' proclamation is not without merit. Amid the coronavirus-induced recession and a growing fiscal deficit, the US national debt recently surpassed $27 trillion — and it's climbing fast. With talks of another fiscal stimulus package coming down the pike, it seems safe to say that number is about to increase.
But the US government isn't the only one that's been spending more. Governments around the world have been voraciously stimulating their economies as well — and so are their central banks.
Here's a look at the Federal Reserve's balance sheet since 2004. Recently, it's exploded in size in response to the coronavirus pandemic. The Fed's balance sheet now sits $3 trillion above its September 2019 reading, and is more than triple that of it's post-Financial Crisis level.
To Rogers, that's cause for concern.
"I don't know who's going to bail us out next time around" he said. "Probably nobody; and maybe even the money printers will run out of trees they're going to have to print so much."
In Rogers view, we're running out of of solutions to this conundrum.
"Adam, if I could go in and say to the US: 'Okay, we're going to stop spending; we're going to stop all this crazy spending; and we're going to stop printing money; we're going to balance our budget every year, you know, I would be assassinated," he said. "The problem, Adam, is the main lesson of history is, people don't learn the lessons of history."
To Rogers, there's only a few potential outcomes: default on the debt or inflate it away. Both are less than ideal and could have potentially detrimental effects on both markets and the economy.
Rogers isn't the only one who's been warning about the US' (and most of the world's, for that matter) debt load. David Hunter, the chief macro strategist at Contrarian Macro Advisors who's been expecting an 80% stock plunge, touts a similar thesis about both government and corporate debt loads.
"We have debt beyond anything we can ever manage," Hunter said. "When you get these surprises, that leverage really exacerbates whatever downturn you get."
In Hunter's mind, a slew of belly-up companies and bank failures will be the result of this sticky situation.
"Well, history is pretty clear: If you run up gigantic debts, it leads to serious problems," Rogers said. "You can go through history, you'll see it always happens. They get on top; the currency becomes king; and then they disappear because they get overextended. That's what's happening now with the US."
With all of that under consideration, Rogers relays a stark warning for market participants thinking this level of debt is sustainable.
"So, I worry when the next bear market comes, it's got to be worse than 2008 because the debt is much, much, much higher than in 2008," he said in reference to a time period where the S&P 500 fell more than 50%. "Now, unless you know some miracle that's going to do something about the debt, it's got to be worse."
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