Jim Rogers recommends:
"The way to solve this problem is to let people go bankrupt," Rogers said.
"Then you will hit bottom and then you start over. The people who are sound will take over the assets from the people who aren’t sound and we will start over. This is the way the world has worked for a few thousand years."
Is this man insane? Here is why Jim Rogers in my opinion is talking garbage.
His theory is that in a free market economy the strong survive and the weak collapse. Fair enough, no arguments there. But there is a really big problem in his thinking.
Look at the car industry. Right now there is quite a bit of suffering going on. Now imagine one of the car makers were to go bankrupt. I don’t care which one, as it could be Toyota for all I know. The point is that one of them goes bankrupt, what happens? Well, the people working for the bankrupt company have problems, the suppliers have problems and there are some innocent bystanders that have problems.
Though with the collapse of the company room is made for competitors to scoop up business, create jobs and create a stronger car eco-system. This is the free market and what Jim is promoting. I agree with this completely.
But there is a serious flaw in his thinking. Imagine for the moment that instead of a car maker going bankrupt, the steel producers hit hard times. Remember there are only a dozen steel producers on this planet. Imagine that all steel producers have problems and with Jim’s attitude half should go bankrupt. What then? What would be the ramifications of that on our economy? It would be chaos! Sheer chaos!
It would imply an economic collapse because our economy relies on steel. I bet where you are sitting and reading this blog entry you could point out at least a dozen products that rely on steel. If you say, "hey I have plastic and it does not need steel" I reply, "how do you think that plastic was moulded? Steel moulds!"
The financial industry is like the steel industry in that it is a core part of our economy. And thus saying that the free market should take care of it all is like saying, "hey let’s stop using steel until we figure out who is strong and should survive." Those companies that consumer steel, which is basically the entire economy can’t sit around and ask everybody to go on vacation. Those companies have to keep moving and keep producing.
Thus Jim Roger’s assertion that we should let the industry figure itself out is ludicrous since what are the dependent companies supposed to do in the mean time? Play canasta? Drink lemonade and sit on the veranda while watching the sun set?
Of course one could raise the argument on why we are in this situation to begin with. And why there was not a better regulation. All good discussion points, but right now we need to figure out how to get credit flowing again, or "getting steel to be produced again."