Federal Reserve has already started QE3, says investor Jim Rogers

Veteran US investor Jim Rogers believes the Federal Reserve has already launched a third round of quantitative easing, despite chairman Ben Bernanke failing to mention stimulus measures in his Jackson Hole speech last week.

By Andrew Trotman

Mr Rogers, who co-founded the Quantum Fund with George Soros, believes that America's central bank is secretly printing money to avoid "getting egg on their face again" after previous attempts to kickstart the faltering economy with $2 trillion of QE failed.

"I do not know if they [the Fed] will announce it," he told India's Economic Times. "I know they are going to print more money. They already are. If you look at their balance sheets, you will see that something is happening, assets are building on their balance sheets and they are not coming from the tooth fairy.

"They are a little bit embarrassed because they announced QE1 and QE2, and it did not work. So they may try to discuss it. They may just continue to do it without getting egg on their face again, but they are going to print money, they are all going to print money. It is the wrong thing to do, but that is all they know how to do."

He told the Daily Telegraph: "They probably have learned how to do things off balance sheet. I have nothing to confirm this but everyone else has learned how, so they probably have too. This is just a comment on human nature."

Mr Bernanke said in his annual speech at Jackson Hole on Friday that the country's high level of unemployment - it climbed to 8.3pc in July - is a "grave concern" and that the "economic situation remains far from satisfactory".

The US's plight is echoed across the Western world as the eurozone grapples with its own debt crisis that threatens to see Greece leave the single currency. Spain and Italy are also struggling with recession as austerity measures championed by Germany eat away at growth.

And Mr Rogers believes there is no end in sight to the eurozone's problems.

"There are going to be more problems coming out of Europe," he said. "You have got countries that are essentially bankrupt. Nobody is dealing with the problems in Europe. You look at everyone out there. They all have higher debts and all of their projections, maybe Bulgaria and one or two more countries do not have higher debts in their projections, but everybody has got increasing debt. The solution to too much debt is not more debt."

As turbulence rocks Western stock markets - the Euro Stoxx 50 index is down 3.1pc from its year-high in March after falling 18.8pc - investors have turned to emerging markets such as Asia for returns. However, Mr Rogers - whose Quantum portfolio gained 4,200pc in the 10 years to 1983 as the S&P advanced about 47pc - says the East has major problems of its own.

"I doubt [India can overcome its sluggish growth]. The debt to GDP in India is now more than 90pc. Study shows that when you get that high debt ratio, it is very difficult to grow in a dynamic way... India has inflation for its own reasons... I am not a fan of India. In fact, I am short on India."

Even China, which has enjoyed double-digit growth in recent years, is at risk from a financial crisis as the government seeks to cool the economy. Chinese manufacturing fell to a three-year low on Monday in a further sign China is headed for a "hard landing".

"China tried tightening for three years," Mr Rogers added. "It started back in 2009 or so to try to kill the inflation bubble and the property bubble. Rightly so in my view. Now they are starting to loosen up. I would not loosen up yet if I were China because they need to kill inflation totally and they need to totally pop the property bubble. But I am not China. They are going to do what they want to do."

With the eurozone crisis spreading to all corners of the globe, traditional safe havens have come to the fore. The gold price, for instance, traded above $1,900 an ounce last year but is now around $1,689. However, Mr Rogers believe this will start to rise again once governments are forced into restarting stimulus measures.

"Unfortunately, all central banks know to do is to print money. You are going to see more money printing, more debasement of currency and, therefore, the price of gold will go much higher over the course of the decade... The situation with gold is that it has been up 11 years in a row without a down year, which is extremely unusual."

Another commodity that is predicted to rise is oil, as supply issues and potential wars push the price ever higher.

"The surprise with oil is going to be how high it stays and how high it goes," Mr Rogers said. "We are running out of known reserves of oil. There may be a lot of oil in the world. If there is, we just don't know where it is. So prices are going to stay high and go much higher. If America goes to war with Iran, they are going to skyrocket."

Mr Rogers recommends buying oil if the price crashes on a country such as Spain leaving the eurozone.

$15 Trillion To Be Added To Money Supply & Gold To Ascend

KWN has been getting bombarded from readers around the world on the Michael Pento piece titled, “This Major Fed Move Is About To Cause Gold To Skyrocket.”   Today we followed up with Michael Pento because there was such tremendous interest in knowing more about this major move he expects from the Fed.  Today Pento told King World News that this move he is predicting could add a staggering $15 trillion to the money supply. 

Pento, of Pento Portfolio Strategies, also said that if this move happens, “you will see the gold market fly far past its nominal record high in extremely short order.”  Here is what Pento had to say:  “So let me put it together for your listeners.  We have $1.42 trillion of excess reserves.  We are now going to be told that there will be no capital reserve requirements on owning sovereign debt.  You will have commercial banks flooding the market with the purchase of sovereign debt.  Not just US debt, Portuguese debt, Spanish debt, Greek debt, all of that debt will have zero capital requirements.”

“Let me be clear on this, I’m not saying it could increase M2 money supply to $15 trillion, this could increase it by $15 trillion.  So we’re talking perhaps about $24 trillion.  It has the potential to increase to rapidly increase the global money supply, and it would be a tremendous boost to commodities, oil and precious metals. 

However, I would add that it will only vastly exacerbate the stagflationary environment that we see gripping the entire developed world....

“It’s much worse than a QE3 because QE1 and QE2, because the vast majority of that money created is sitting with the central bank, it’s laying fallow at the central bank.  But if you have a mechanism like I just described, no longer having sovereign debt have any capital reserve requirements, the notion to stop paying interest on these excess reserves, you will have all of that money that was laying fallow, flood into the economy at once.

So there is no easy answer.  Bernanke doesn’t know what he’s doing.  He spent too much time studying the Great Depression.  He’s going to get a chance to study one firsthand in my opinion. 

What he needs to do is let the free market work, and I can tell you that unleashing $1.5 trillion into the American economy, and having that money roll-over and multiply (to $15 trillion), through the money-multiplier-effect, is not a very good idea.”

Pento also added: “I am a big advocate of hard money policies around the world, and I love gold.  However, I am not a broken clock.  If gold was going to go into a bear market, I’d be the first one to tell you.  I have been on the record, on King World News, telling people when I thought gold was overbought.

I’ve been on record telling people that we’re in this cyclical period of truncated deflation, but if they do the two things I just described in this interview, which is to implement the Basel III Accord, and cease paying interest on excess reserves, you will see the gold market fly far past its nominal record high in extremely short order.”