Wednesday, October 21, 2009
Jim Rogers needs to get out of the 15th century!
In a recent conference Jim Rogers said the following:
"How can the solution for debt and consumption be more debt and more consumption? How can that be the solution to our problems?"
The problem is not consumption, it's a lack of consumption. What is Jim Rogers looking at? GDP has fallen because consumption has fallen. Falling GDP equates to falling household income and job losses. The way to restore growth is to restore aggregate demand, which the government can do by spending (adding that demand).
Rogers does not understand the monetary system. The issuance of Treasuries by the government is not borrowing, but used to sustain an interest rate. The Government spends by crediting bank accounts electronically and there is no constraint to the amount of this spending that it can do.
When a nation's resources and capital (both physical and human) are idle or under-utilized, as is the case now, then that nation is said to be living below its means and the longer this situation persists, it raises the risk that the residents of that nation become poorer relative to citizens of other countries.
Finally, Treasuries are assets to people who hold them and, therefore, comprise part of the wealth of the non-governmental sector. The only way for government to reduce this "debt" is to take back some portion of that private sector wealth. Is this what Jim Rogers really believes to be the path to prosperity? He must get out of the 15th century.