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Investment guru fears inflation

By Andrew Moody (China Daily)
Updated: 2009-04-13 07:45

Jim Rogers, the US investment guru, warned last week that although world leaders came up with a broad range of steps to stimulate the international economy at the London Summit, their actions might have unintended consequences.

Speaking in Beijing, Rogers, who is something of a celebrity in China, said the trillion-dollar fiscal stimulus package would stoke up major inflation and lead to higher interest rates which would send economies spiraling into a further downturn.

He said he doubted whether the major economies would emerge from recession for a long time and cited Japan, which has been in recession for 19 years, as a harbinger of the doom the world may face.

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"If governments keep making mistakes, it is going to be a very long time. I don't think it is going to be 19 years but we have had long periods in world history where the economy has done nothing," he said.

In an extraordinary downbeat assessment of the world's current economic plight, Rogers said one of the big problems that was going to be facing the world in the medium-term is high inflation as a direct consequence of current attempts to reflate the world economy.

"We are going to have much more serious inflation down the road. Throughout history when governments have printed money, it has led to higher prices," he said.

The 66-year-old American, who founded the Quantum Fund in the 1970s with George Soros, said the inflation problem is likely to be much worse this time because of the sheer scale of the world bail out.

"This is the first time in recorded history when every government in the world or nearly every government is spending huge amounts of money at a time when we already have real supply constraints," he said.

Rogers said the stoking up of inflation was going to lead to a major international currency crisis with possible runs on either the US dollar or UK sterling.

"It is going to lead to more turmoil in the credit markets and is going to lead to a currency crisis, whether this starts in sterling or the dollar," he said.

He said the damage inflicted on other major currencies could see China's RMB replacing the US dollar as the world's major currency.

"China is opening up its currency more and more and they (the China Government) are continuing to open it up. If that continues, I would suspect the Chinese RMB has the best prospects of any currency that I know to replace the US dollar in 15 to 20 years, " he said.

"The RMB may have its downs in the future but for the most part, it should be one of the sounder currencies in the world and be of ever increasing importance, " he said.

Rogers was speaking at the Beijing offices of China Machine Press, the publishers of his new book "The Crystal Ball", which has been written by China journalist Yang Qing.

The American said he remained optimistic about China, despite his downbeat global prognosis, and that the country was still on course to being the great economic power of the 21st Century.

"It really doesn't matter whether China grows at 8 per cent or not (China's growth has recently fallen below that level) because I am talking about the next century. China can have recessions and difficult times but still become the next great country in the world," he said.

And he added: "In the 19th Century, America had 15 depressions, it had a horrible civil war in which more Americans were killed than throughout history put together, it had very few human rights, very little rule of law, had massacres in the streets periodically, went bankrupt a couple of times but despite all these problems and setbacks had a very successful 20th century," he said.

He said so far the Chinese government had taken far more sensible measures to keep the country's economy on track than many of the western governments.

"China has done a better job than most countries in dealing with the current situation. It has built up reserves in case of a rainy day. Well, now it is raining. In my view, it is going to spend those reserves in a wise way, building for the future, " he said.

"America, on the other hand, is just spending money to create work and short term things."

Rogers, who now lives in Singapore, said his biggest investment in China was to have his two daughters, Lele (English name Hilton Augusta), 5, and Xiaomifeng (English name, Beeland Anderson), 1, tutored in Chinese.

Pointing towards Lele (which means "Happy" in English), who was presented to the media, Rogers said: "As you can see my vision of the future of China is right there I don't stop teaching her or her sister Chinese because China is having a slowdown. We are not going to start teaching them Danish or Swedish."

"As far as my best investment in China, well, there she is. You can ask me in 35 or 40 years whether it has worked. Just because someone speaks English and Chinese does not make them successful but I am preparing her for the world that I see in her lifetime."

In terms of more conventional investment instruments, Rogers said he had had a very good experience in investing in China. One of his first major shareholdings was in Changyu, China's leading winemaker, in 1999, which has since increased tenfold in value.

Rogers said that he hadn't bought any shares in any country since last fall and expected markets to remain extremely volatile and even find new lows from current levels.

"The world is in difficult economic times and politicians keep making mistakes so I don't see stock markets making their final bottom for a while," he said.

He said investors should look to put their money into real assets such as commodities, which would also be a hedge against the imminent inflation he predicts.

"One of the best ways to protect yourself against inflation is to own real assets. The supply of all commodities is under duress or decline. Inventories of food are the lowest for 50 years. No one can get a loan to open a mine and oil reserves are rapidly declining. I would suggest you learn about investing in real asserts," he said.

Although he was speaking in China, where many people are moving from rural to urban areas to find work, Rogers says agriculture is likely to be one of the next booming industries.

"Farmers worldwide are about to make fortunes and will have a fabulous next 20 or 30 years. We should all become farmers, " he said.

Rogers said the one big no-go area as far as investment was concerned was US dollars and government bonds.

"If I were China or anybody, I would not be buying US dollars or government bonds, " he said.