Aug 20, 2008

Jim Rogers says that Fed Chairman Ben Bernanke should abolish the Federal Reserve and then resign.

"The next shock’s going to be even bigger still.  So the shocks keep getting bigger because we kept propping things up and this has been going on at least since Long-Term Capital Management. They’ve been bailing everyone out and [former Fed Chairman Alan] Greenspan took interest rates down and then he took them down again after the “dot-com bubble” shock, so I guess Bernanke could try to start reversing some of this stuff. 

"But he has to not just reverse it – he’d have to increase interest rates a lot to make up for it and that’s not going to solve the problem either, because the basic problems are that America’s got a horrible tax system, it’s got litigation right, left, and center, it’s got horrible education system, you know, and it’s got many, many, many [other] problems that are going to take a while to resolve.  If he did at least turn things around – turn some of these policies around – we would have a sharp drop, but at least it would clean out some of the excesses and the system could turn around and start doing better. 

"But this is academic – he’s not going to do it. But again the best thing for him would be to abolish the Federal Reserve and resign.  That’ll be the best solution.  Is he going to do that?  No, of course not.  He still thinks he knows what he’s doing."

http://www.moneymorning.com/2008/08/19/jim-rogers/

COMMENT: Jim Rogers mentions the collapse of Long-Term Capital Management, implying that it was in some way a beginning point for the current economic problem. This occurred on Sept. 23, 1998, precisely two years after we declared the Jubilee on Sept. 23, 1996. I remember this well, because I was driving to Windsor, Ontario, and as I drove through Chicago, I was suddenly struck by the feeling that a very important event in regard to a "Jubilee" had just occurred. I learned later that evening of the collapse of LTCM.

This event occurred nearly 10 years ago. Are we seeing a ten-year pattern according to the Hezekiah Factor?

In the days leading up to the collapse of LTCM, the most important date was August 17, 1998. On that day President Clinton went on national television and angrily confessed his affair with Monica Lewinsky. On the same day, Russia defaulted on its loans, beginning the collapse of Russia's currency. I wrote about this in a report back then, saying,

"I believe that both of these events will prove to be historic watersheds in our respective countries that will change the course of history in more ways than we can imagine.. There is no doubt about it--August 17, 1998 was a very important date in the history of the Red Dragon wars. While most men would see these events as very grave, I see these things as the result of the prayers of the saints, who have now been given the authority to deal with this Red Dragon and replace his system with the Kingdom of Jesus Christ upon the earth."

The British Financial Times ran an article on Sept. 25, 1998, just a few days after the collapse of LTCM. It told about the emergency meeting that Alan Greenspan had called with "the elite of Wall Street."

"The men were here to rescue one of their own--and save themselves from the effects of one of the most spectacular financial collapses of modern Wall Street. . .

"For four years, LTCM had produced spectacular and consistent returns on its capital base of up to $7bn from its headquarters in Greenwich, Connecticut . . . . But that had ended abruptly in the wake of the economic collapse of Russia . . .

"The near collapse of LTCM had come as an enormous shock to the men around the table, whose investment banks had extended credit to the firm and traded with it. Not only could they face losses from its collapse, but its defeat was potentially a defining moment for Wall Street in the 1990's . . . The consequences of allowing LTCM to go down were ultimately too frightening."

LTCM was left with just $400 million out of its original $4.4 billion. That is, it had lost 92% of its money. And the bigger problem was that they were leveraged 50 to 1, and so their total exposure was somewhere between $600 billion to 1 trillion dollars.

This bailout shows that when any single large financial institution goes down, it can easily take the others down with it. That is why the government or the Fed now steps in to bail out failing banks like Bear Stearns, Fannie Mae, and Freddie Mac. I can understand their concern. The whole system is a house of cards that cannot last forever, because from the beginning it has sown the seeds for its own destruction.

And now, ten years later, we are poking Russia in the eye, picking another fight. But this time Russia is the one with the oil exports and has plenty of money. This time it is America that is nearing a default. The tables are turned, but we are still acting as if we are a superpower in the world. Sorry, but we already gave away the farm in the name of "free trade policy." We sent the jobs to other countries like China, and this can only make them the next superpower, unless the dollars they hold become as worthless as the ones that we hold.

But don't worry. For now, you can buy cheap Chinese goods from WalMart. And every other company will have to import foreign-made goods in order to compete with WalMart.