VANCOUVER, B.C. – The U.S. financial crisis has cut so deep – and the government has taken on so much debt in misguided attempts to bail out such companies as Fannie Mae and Freddie Mac – that even larger financial shocks are still to come, global investing guru Jim Rogers said in an exclusive interview with Money Morning.

Indeed, the U.S. financial debacle is now so ingrained – and a so-called "Super Crash" so likely – that most Americans alive today won’t be around by the time the last of this credit-market mess is finally cleared away – if it ever is, Rogers said.

The end of this crisis "is a long way away," Rogers said. "In fact, it may not be in our lifetimes."

During a 40-minute interview during a wealth-management conference in this West Coast Canadian city last month, Rogers also said:

• Why U.S. Federal Reserve Chairman Ben S. Bernanke should "resign".
• How the U.S. national debt – the roughly $5 trillion held by the public – essentially doubled in the course of a single weekend.
• That U.S. consumers and investors can expect much-higher interest rates – noting that if the Fed doesn’t raise borrowing costs, market forces will make that happen.
• Which stocks he’s holding onto for the rest of the year

Rogers first made a name for himself with The Quantum Fund, a hedge fund that’s often described as the first real global investment fund, which he and partner George Soros founded in 1970. Over the next decade, Quantum gained 4,200%, while the Standard & Poor’s 500 Index climbed about 50%.

It was after Rogers "retired" in 1980 that the investing masses got to see him in action. Among his historic market calls, Rogers predicted China’s meteoric growth a good decade before it became apparent and he subsequently foretold of the powerful updraft in global commodities prices that’s fueled a year-long bull market in the agriculture, energy and mining sectors.

[Editor's note: Rogers recently released a new book, "A Bull in China," a page-turner that reveals what China stocks to buy... when to buy. To learn how you can get "A Bull in China" for free, please click here.] 

Rogers’ candor has made him a popular figure with individual investors, meaning his pronouncements are always closely watched. Here are some of the highlights from the exclusive interview we had with the author and investor, who now makes his home in Singapore:

Keith Fitz-Gerald (Q): Looks like the financial train wreck we talked about earlier this year is happening.

Jim Rogers:  There was a train wreck, yes.  Two or three – more than one, as you know.  [U.S. Federal Reserve Chairman Ben S.] Bernanke and his boys both came to the rescue.  Which is going to cover things up for a while.  And then I don’t know how long the rally will last and then we’ll be off to the races again.  Whether the rally lasts six days or six weeks, I don’t know.  I wish I did know that sort of thing, but I never do.

(Q):What would Chairman Bernanke have to do to "get it right?" 

Rogers: Resign.

(Q): Is there anything else that you think he could do that would be correct other than let these things fail?

Rogers:Well, at this stage, it doesn’t seem like he can do it.  He could raise interest rates – which he should do, anyway. Somebody should.  The market’s going to do it whether he does it or not, eventually.

The problem is that he’s got all that garbage on his balance sheet now.  He has $400 billion of questionable assets owing to the feds on his balance sheet.  I mean, he could try to reverse that.  He could raise interest rates.  Yeah, that’s what he could do.  That would help. It would cause a shock to the system, but if we don’t have the shock now, the shock’s going to be much worse later on.  Every shock, so far, has been worse than the last shock.  Bear-Stearns [now part of JP Morgan Chase & Co. (JPM)] was one thing and then it’s Fannie Mae (FNM), you know, and now Freddie Mac (FRE). 

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.

(Q): Earlier this year, when we talked in Singapore, you made the observation that the average American still doesn’t know anything’s wrong – that anything’s happening. Is that still the case?

Rogers:Yes.

(Q): What would you tell the "Average Joe" in no-nonsense terms?

Rogers:  I would say that for the last 200 years, America’s elected politicians and scoundrels have built up $5 trillion in debt.  In the last few weekends, some un-elected officials added another $5 trillion to America’s national debt.

Suddenly we’re on the hook for another $5 trillion. There have been attempts to explain this to the public, about what’s happening with the debt, and with the fact that America’s situation is deteriorating in the world. 

I don’t know why it doesn’t sink in.  People have other things on their minds, or don’t want to be bothered.  Too complicated, or whatever. 

I’m sure when the [British Empire] declined there were many people who rang the bell and said: "Guys, we’re making too many mistakes here in the U.K."  And nobody listened until it was too late. 

When Spain was in decline, when Rome was in decline, I’m sure there were people who noticed that things were going wrong.

(Q):Many experts don’t agree with – at the very least don’t understand – the Fed’s current strategies. How can our leaders think they’re making the right choices? What do you think?

Rogers:Bernanke is a very-narrow-gauged guy.  He’s spent his whole intellectual career studying the printing of money and we have now given him the keys to the printing presses. All he knows how to do is run them.

Bernanke was [on the record as saying] that there is no problem with housing in America.  There’s no problem in housing finance.  I mean this was like in 2006 or 2005.
(Q): Right.

Rogers:  He is the Federal Reserve and the Federal Reserve more than anybody is supposed to be regulating these [financial institutions], so they should have the inside scoop, if nothing else. 

 (Q): That’s problematic. 

Rogers:  It’s mind-boggling.  Here’s a man who doesn’t understand the market, who doesn’t understand economics – basic economics.  His intellectual career’s been spent on the narrow-gauge study of printing money. That’s all he knows. 

Yes, he’s got a PhD, which says economics on it, but economics can be one of 200 different narrow fields.  And his is printing money, which he’s good at, we know.  We’ve learned that he’s ready, willing and able to step in and bail out everybody. 

There’s this worry [whenever you have a major financial institution that looks ready to fail] that, "Oh my God, we’re going to go down, and if we go down, the whole system goes down."
This is nothing new.  Whole systems have been taken down before.  We’ve had it happen plenty of times.

(Q):History is littered with failed financial institutions.

Rogers:I know.  It’s not as though this is the first time it’s ever happened.  But since [Chairman Bernanke's] whole career is about printing money and studying the Depression, he says: "Okay, got to print some more money.  Got to save the day."  And, of course, that’s when he gets himself in deeper, because the first time you print it, you prop up Institution X, [but] then you got to worry about institution Y and Z.

(Q): And now we’ve got a dangerous precedent. 

Rogers: That’s exactly right.  And when the next guy calls him up, he’s going to bail him out, too.

(Q): What do you think [former Fed Chairman] Paul Volcker thinks about all this?

Rogers:Well, Volcker has said it’s certainly beyond the scope of central banking, as he understands central banking.

(Q): That’s pretty darn clear.

Rogers: Volcker’s been very clear – very clear to me, anyway – about what he thinks of it, and Volcker was the last decent American central banker.  We’ve had couple in our history: Volcker and William McChesney Martin were two. 

You know, McChesney Martin was the guy who said the job of a good central banker was to take away the punchbowl when the party starts getting good. Now [the Fed] – when the party starts getting out of control – pours more moonshine in.  McChesney Martin would always pull the bowl away when people started getting a little giggly. Now the party’s out of control. 

(Q):  This could be the end of the Federal Reserve, which we talked about in Singapore. This would be the third failure – correct?

Rogers: Yes. We had two central banks that disappeared for whatever reason.  This one’s going to disappear, too, I say.

(Q):Throughout your career you’ve had a much-fabled ability to spot unique points in history – inflection points, if you will. Points when, as you put it, somebody puts money in the corner at which you then simply pick up.

Rogers:That’s the way to invest, as far as I’m concerned. 

(Q): So conceivably, history would show that the highest returns go to those who invest when there’s blood in the streets, even if it’s their own. 

Rogers:Right.

(Q): Is there a point in time or something you’re looking for that will signal that the U.S. economy has reached the inflection point in this crisis?

Rogers:  Well, yeah, but it’s a long way away.  In fact, it may not be in our lifetimes. Of course I covered my shorts – my financial shorts.  Not all of them, but most of them last week. 
So, if you’re talking about a temporary inflection point, we may have hit it.

If you look back at previous countries that have declined, you almost always see exchange controls – all sorts of controls – before failure. America is already doing some of that. America, for example, wouldn’t let the Chinese buy the oil company, wouldn’t let the [Dubai firm] buy the ports, et cetera.

But I’m really talking about full-fledged, all-out exchange controls.  That would certainly be a sign, but usually exchange controls are not the end of the story. Historically, they’re somewhere during the decline.  Then the politicians bring in exchange controls and then things get worse from there before they bottom. 

Before World War II, Japan’s yen was two to the dollar. After they lost the war, the yen was 500 to the dollar.  That’s a collapse.  That was also a bottom.

These are not predictions for the U.S., but I’m just saying that things have to usually get pretty, pretty, pretty, pretty bad. 

It was similar in the United Kingdom. In 1918, the U.K. was the richest, most powerful country in the world.  It had just won the First World War, et cetera. By 1939, it had exchange controls and this is in just one generation.  And strict exchange controls.  They in fact made it an act of treason for people to use anything except the pound sterling in settling debts. 

(Q): Treason? Wow, I didn’t know that.

Rogers:  Yes…an act of treason.  It used to be that people could use anything they wanted as money.  Gold or other metals. Banks would issue their own currencies.  Anything.  You could even use other people’s currencies. 

Things were so bad in the U.K. in the 1930s they made it an act of treason to use anything except sterling and then by ‘39 they had full-exchange controls.  And then, of course, they had the war and that disaster.  It was a disaster before the war.  The war just exacerbated the problems.  And by the mid-70s, the U.K. was bankrupt. They could not sell long-term government bonds.  Remember, this is a country that two generations or three generations before had been the richest most powerful country in the world. 

Now the only thing that saved the U.K. was the North Sea oil fields, even though Prime Minister Margaret Thatcher likes to take credit, but Margaret Thatcher has good PR. Margaret Thatcher came into office in 1979 and North Sea oil started flowing.  And the U.K. suddenly had a huge balance-of-payment surplus. 

You know, even if Mother Teresa had come in [as prime minister] in ‘79, or Joseph Stalin, or whomever had come in 1979 – you know, Jimmy Carter, George Bush, whomever – it still would’ve been great. 

You give me the largest oil field in the world and I’ll show you a good time, too.  That’s what happened.

(Q):What if Thatcher had never come to power?

Rogers: Who knows, because the U.K. was in such disastrous straits when she came in.  And that’s why she came to power…because it was such a disaster.  I’m sure she would’ve made things better, but short of all that oil, the situation would’ve continued to decline. 

So it may not be in our lifetimes that we’ll see the bottom, just given the U.K.’s history, for instance.

(Q):  That’s going to be terrifying for individual investors to think about.

Rogers: Yeah. But remember that America had such a magnificent and gigantic position of dominance that deterioration will take time. You know, you don’t just change that in a decade or two.  It takes a lot of hard work by a lot of incompetent people to change the situation.  The U.K. situation I just explained…that decline was over 40 or 50 years, but they had so much money they could have continued to spiral downward for a long time. 

Even Zimbabwe, you know, took 10 or 15 years to really get going into it’s collapse, but Robert Mugabe came into power in 1980 and, as recently as 1995, things still looked good for Zimbabwe. But now, of course, it’s a major disaster. 

That’s one of the advantages of Singapore. The place has an astonishing amount of wealth and only 4 million people.  So even if it started squandering it in 2008, which they may be, it’s going to take them forever to do so.

(Q): Is there a specific signal that this is "over?"

Rogers: Sure…when our entire U.S. cabinet has Swiss bank accounts.  Linked inside bank accounts.  When that happens, we’ll know we’re getting close because they’ll do it even after it’s illegal – after America’s put in the exchange controls.

(Q): They’ll move their own money.

Rogers: Yeah, because you look at people like the Israelis and the Argentineans and people who have had exchange controls – the politicians usually figured it out and have taken care of themselves on the side.

(Q):We saw that in South Africa and other countries, for example, as people tried to get their money out.

Rogers:Everybody figures it out, eventually, including the politicians.  They say: "You know, others can’t do this, but it’s alright for us." Those days will come.  I guess when all the congressmen have foreign bank accounts, we’ll be at the bottom. 

But we’ve got a long way to go, yet.

(Q): There’s a lot of talk that the Chinese will use the Olympics to launch a new wave of nationalism and to move ahead. Are the Olympic Games as relevant as some people think?

Rogers:They’ve already got tremendous nationalism. But the international reactions about Tibet and the Olympic torchbearers re-awakened it.

And the politicians, of course, need it because they’ve got their own problems with inflation and overheating and [pollution and] the rest of it. So, like politicians throughout history, they fan it – do their best to say: Hell, it’s not our problem. It’s the evil farmers. It’s the French. See that store over there: It’s their fault. It’s the Americans."

So that is happening, anyway.
As far as the Olympics themselves, they’re irrelevant.

America had the Olympics in ‘96 and it had no effect on the American economy – before or after. Some people in Atlanta were affected before and after. And some people who were involved with the Olympics were affected before and after.

America at that time had 270 million people. China’s got five times as many people, and it’s a much bigger country geographically.

Sydney, Australia had the 2000 Olympics. It had virtually no effect on the Sydney, or on the Australian economy – even though Australia had 18 million people. It’s tiny … nothing. Yes, it had an effect on some people.

Greece, in 2004, had the Olympics. You haven’t heard stories of a major collapse or a major revival of Greece in 2005, because the fact is that the Games didn’t have much of an effect – not a noticeable effect, anyway. It had spot effects only, so I ignore the Olympics as far as the Chinese economy – and its stock market – is concerned.
(Q): Are you still bullish on China?

Rogers:Oh, yeah. I never sold anything in China. In fact, I bought more. I bought Chinese Airlines (CHAWF) last week. I flew one coming here. Maybe I made a mistake [with the investment], because it was emptier than I thought it would be.

(Q): Any thoughts why?

Rogers:One thing, you know, is that China’s made it extremely difficult to get a visa right now. In the past, it’s been hard to get a seat because Chinese airlines were so full. On this flight there were empty seats.

That brought home to me that they are cutting back enormously on visas right now. Discouraging travel, trying to clean the air, trying to protect against somebody blowing up the Forbidden City, et cetera. So the fact that planes are empty right now may be smarter than I thought.

Maybe I did get the bottom on the airlines, because if they are going to reissue the visas again, after all this, after September [after the Olympic Games have concluded], then the planes are going to fill up pretty quickly again. I would have picked the stock up at a bottom.

(Q):Yes.

Rogers:Anyway, I’m still around China. I have never sold any of my Chinese companies. You know, selling China in 2008 is like selling America in 1908. Sure, let’s say the market goes down another 40% – so what! You look back over 100 years, you look back from the beauty of 1928, or even 1938 [in the depths of the Great Depression], and there is somebody who bought shares in 1908. He was still a lot better off having not sold in 1908.

[Editor's note: The Olympics were only a small window into China's economic potential. In fact, the Red Dragon is on the verge of handing investors the biggest profit opportunity in its 30-year growth explosion - one that's about to make the commodity boom look like an ant hill. "The New China Trader" reveals the dozens of Chinese companies set to be tomorrow's global leaders. Click here to learn more.]

 Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report

VANCOUVER, B.C. – Despite its many problems, China remains such a strong long-term profit play that giving up on that country now would be like selling all your U.S. stocks at the start of the 1900s – before America created massive wealth by evolving into a world superpower, global investing guru Jim Rogers said in an exclusive interview with Money Morning.

“I have never sold any of my Chinese companies,” Rogers said. “You know, selling China in 2008 is like selling America in 1908. Sure, let’s say the market goes down another 40% – so what! You look back over 100 years, you look back from the beauty of 1928, or even 1938 [in the depths of the Great Depression], and there is somebody who bought shares in 1908. He was still a lot better off having not sold in 1908.”

During a 40-minute interview during a wealth-management conference
in this West Coast Canadian city last month, Rogers also said that:

• The anti-travel policies China has put in place to reduce gridlock and slash pollution during the Summer Olympic Games may
  actually have created a “bottom” in China stocks – possibly creating a great entry point for long-term investors.
• The 34-day worldwide Olympic torch relay leading up to the opening ceremonies likely re-awakened China’s deeply felt nationalism – which will be key as that country strives to build demand for its domestically produced products.
• And noted that the country must still deal with such problems as pollution, rising inflation and an overheated economy.

A long-time China bull, Rogers first made a name for himself with The Quantum Fund, a hedge fund that’s often described as the first real global investment fund, which he and partner George Soros founded in 1970. Over the next decade, Quantum gained 4,200%, while the Standard & Poor’s 500 Index climbed about 50%.

It was after Rogers “retired” in 1980 that the investing masses first really got to see him in action. Rogers traveled the world (several times), and penned such bestsellers as “Investment Biker” and the recently released “A Bull in China.” He also made some historic market calls: Rogers predicted China’s meteoric growth a good decade before
it became apparent to everyone else, and he subsequently foretold of the powerful updraft in global commodities prices that’s fueled a year-long bull market in the agriculture, energy and mining sectors.

Rogers’ candor has made him a popular figure with individual investors, meaning his pronouncements are always closely watched. Here are
some of the highlights from the exclusive interview we had with the author and investor, who now makes his regular home in Singapore:

Keith Fitz-Gerald (Q): There’s a lot of talk that the Chinese will
use the Olympics to launch a new wave of nationalism and to move ahead. Are the Olympic Games as relevant as some
people think?

Jim Rogers: They’ve already got tremendous nationalism. But the international reactions about Tibet and the Olympic torchbearers re-awakened it.

And the politicians, of course, need it because they’ve got their own problems with
inflation and overheating and [pollution and] the rest of it.
So, like politicians throughout history, they fan it – do their best to say: Hell, it’s not our problem. It’s the evil farmers. It’s the French. See that store over there: It’s their fault. It’s the Americans.”

So that is happening, anyway.

As far as the Olympics themselves, they’re irrelevant.

America had the Olympics in
‘96 and it had no effect on the American economy – before or after. Some people in Atlanta were affected before and after. And some people who were involved with the Olympics were affected before and after.

America at that time had 270 million people. China’s got five times as many people, and it’s a much bigger country geographically.

Sydney, Australia had the 2000 Olympics. It had virtually no effect on the Sydney, or on the Australian economy – even though Australia had 18 million people. It’s tiny … nothing. Yes, it had an effect on some people.

Greece, in 2004, had the Olympics. You haven’t heard stories of a major collapse or a major revival of Greece in 2005, because the fact is that the Games didn’t have much of an effect – not a noticeable effect, anyway. It had spot effects only, so I ignore the Olympics as far as the Chinese economy – and its stock market – is concerned.

(Q): Are you still bullish on China?

Rogers: Oh, yeah. I never sold anything in China. In fact, I bought more. I bought Chinese Airlines (PINK: CHAWF) last week. I flew one coming here. Maybe I made a mistake [with the investment], because it was emptier than I thought it would be.

(Q): Any thoughts why?

Rogers: One thing, you know, is that China’s made it extremely difficult to get a visa right now. In the past, it’s been hard to get a seat because Chinese airlines were so full. On this flight there were empty seats.

That brought home to me that they are cutting back enormously on visas right now. Discouraging travel, trying to clean the air, trying to protect against somebody blowing up the Forbidden City, et cetera. So the fact that planes are empty right now may be smarter than I thought.

Maybe I did get the bottom on the airlines, because if they are going to reissue the visas again, after all this, after September [after the Olympic Games have concluded], then the planes are going to fill up pretty quickly again. I would have picked the stock up at a bottom.

(Q): Yes.

Rogers: Anyway I’m still around China. I have never sold any of my Chinese companies. You know, selling China in 2008 is like selling America in 1908. Sure, let’s say the market goes down another 40% – so what! You look back over 100 years, you look back from the beauty of 1928, or even 1938 [in the depths of the Great Depression], and there is somebody who bought shares in 1908. He was still a lot better off having not sold in 1908.

[Editor's note: After interviewing legendary investor Jim Rogers
at his home in Singapore back in March, Investment Director Keith Fitz-Gerald caught up with Rogers again in July - this time in Vancouver, where both were speaking at the Agora Wealth Symposium. In Part 1 of this two-part series, Rogers talked extensively about the ill-advised bailouts of Bear Stearns, Fannie Mae and Freddie Mac, and the potentially ruinous fallout from the financial "Super Crash" that's about to engulf the U.S. market. In this second installment, Rogers emphasizes China's long-term profit promise - something he highlighted in his recent bestseller, "A Bull in China," which contains detailed research on dozens of China's top stocks. To find out how to get a report on the once-in-a-lifetime profit plays available in China - and how to also get a free copy of "A Bull in China" - please click here. Part 1 of this Money Morning interview with Jim Rogers ran yesterday (Tuesday).]

News and Related Story Links:

• Money Morning Exclusive Jim Rogers Interview From Vancouver (Part I):
  Exclusive Interview: Jim Rogers Predicts Bigger Financial Shocks Loom, Fueling a Malaise That May Last for Years.
  |
• Money Morning Exclusive Jim Rogers Interview From Singapore (Part I):
  Jim Rogers: More Pain for the Greenback, and the Failure of the Federal Reserve.

• Money Morning Exclusive Interview From Singapore (Part II):
  Jim Rogers: China’s Economic Advance is All But Unstoppable

• Wikipedia:
  The Forbidden City.
• Official Web Site:
  Beijing Summer Olympics.
• Wikipedia:
  The Great Depression.

SINGAPORE – China’s long-term prospects are so strong that even a civil war, an economic collapse or political assassinations would only temporarily delay its emergence as a worldwide economic powerhouse, global investing guru Jim Rogers told Money Morning during an exclusive interview in this Southeast Asia city-state.

"Civil war would be a terrible thing in China, but it’d be a temporary setback, as would epidemics, as would economic setbacks, [and as would a] depression," Rogers said. "But China will come out of all that and keep going forward.  Now, I don’t anticipate war in China – even civil war – but I’m suggesting that if it happened, I don’t see it as the end of the story any more than [the U.S. Civil War] was the end of the story in the United States."

With an economy that’s advancing at an average annual clip of better than 11%, $1.7 trillion in currency reserves, and an emerging middle class that will soon be the world’s largest, China represents the future to globally focused investors and businesses alike. But there’s always been a concern about just how resilient China’s economy actually would prove to be.

Rogers urged investors to dump such concerns.

Story continues below…

Sign up right now, and we’ll send you an important new report for free: “The Three Best Investments in Asia.”

In fact, according to Rogers, when it comes to the Red Dragon, only one thing could cause this powerful expansion to wash out: A major water crisis.
"China has a huge water problem," he said. "In Northern China, they’re running out of water. They know this and they’re working on it, big time. But if they don’t solve it, or if they don’t solve it in time, then China – as you put it – has failed."

Rogers first made a name for himself with The Quantum Fund, a hedge fund that’s often described as the first truly global investment vehicle, which he and partner George Soros founded in 1970. Over the next decade, Quantum gained 4,200%, while the Standard & Poor’s 500 Index climbed about 50%.

It was after Rogers "retired" in 1980 that the public first really got to see him in action. After traveling the world on a motorcycle, Rogers penned the best seller "Investment Biker" – and gained the moniker: "Adventure Capitalist."  And he’s used the "on-the-ground" insights he gained on that trip and others that followed to make some truly historic market calls: Rogers predicted China’s meteoric growth a good decade before it became apparent to other investing "experts," and he subsequently foretold of the powerful updraft in global commodities prices that is continuing to fuel a year-long bull market in the agriculture, energy and mining sectors.

In his newest best seller, "A Bull in China," Rogers writes about China and the commodities boom, and details dozens of ways investors can profit from these trends.

Given Rogers’ prescience – not to mention all the uncertainty that right now surrounds the U.S. economy – we thought it was well worth a sit-down with the noted guru, even if it meant traveling all the way to Singapore, where he now lives with his family, to do so.

During that hour-long interview at his home in Singapore’s exclusive Orchard Park district – with the two of us talking as he pedaled his exercise bike furiously, despite the morning heat – Rogers also said that:

• Oil prices are only going to go higher.
• That Russia will continue to "strip itself" of assets, meaning it will never emerge as an economic force.
• And that the U.S. dollar’s woes will continue.

Let’s take a look at some of the highlights of the Money Morning interview with investor and author Jim Rogers.
Keith Fitz-Gerald (Q): Can you see an instance where China fails?

Jim Rogers:  Of course. Anybody – and everything – can fail. But [let's consider] the main problem first.

I don’t worry about war or epidemics or depression or even political upheaval.  Everybody has had that. America had horrible problems. We had a terrible Civil War. We had political leaders regularly assassinated 125 years ago. We had massacres in the streets. We had no human rights. We had no rule of law. You could buy and sell congressmen.  You can still buy and sell congressmen in America, but they were much cheaper in those days. 

America had many disasters, and yet it became the great success story of the 20th Century.  As recently as 1907, the entire system went bankrupt in America: The government, Wall Street, everything.  And yet, America came out of that and went on to big things. 

All of those things can happen in China and would be temporary setbacks.  I don’t consider any of them being the end of the China story. 

The only thing that worries me permanently about the China story is water. 

I’ve been around the world twice.  I’ve seen many cities, societies, [and] nations that disappeared because the water disappeared.  China has a huge water problem.  In Northern China, they’re running out of water. They know this and they’re working on it, big time. But if they don’t solve it, or if they don’t solve it in time, then China – as you put it – has failed. 

By the way, Northern India has the same problem, only worse.  Many places have it now.  Water is becoming a huge problem worldwide.  The same is true in the Southwestern United States.  You know, you may have Arizona going to war with California.  Some sections of Nevada, Colorado …they’re desperate there. 

So it’s not just China – but water’s the main thing that worries me about China. 

As I say [that] civil war would be a terrible thing in China, but it’d be a temporary setback, as would epidemics, as would economic setbacks, [and as would a] depression.  But China will come out of all that and keep going forward.  Now, I don’t anticipate war in China – even civil war – but I’m suggesting that if it happened, I don’t see it as the end of the story any more than it was the end of the story in the United States. 

Q: There’s a confluence of money flowing into and around China.  Do you believe that the United States, with all its current problems, will get left out of this powerful and important trend?

Rogers: Absolutely.

The U.S. dollar is a terribly flawed currency.  I’m trying to get all of my money out of U.S. dollars.  I don’t know why anybody would put money into the U.S. dollar, and by extension into the U.S., as we stand here today. The U.S. is probably the largest debtor nation the world has ever seen!

The United States’ foreign debts are increasing at the rate of $1 trillion U.S. dollars every 15 months.  U.S. foreign debt is over $13 trillion, and rising rapidly. It’s the official policy of the central bank to debase the currency. They’re trying to drive down the value of the dollar. 

Q: Is the Chinese Renminbi the next great "liquidity haven" if the U.S. dollar fails? Or do you see the Euro rising to the occasion?

Rogers: If it happens next week, the Euro is the only thing that can do it.  The Renminbi is a "blocked currency."  So it certainly cannot be anything but a blocked currency, until that changes. 

If it happens in 20 years it might be the Renminbi.  It’s the currency that’s big enough and sound enough that it could work.  I don’t think the Euro will be around in 20 years. 

So the only thing I can see – and, again, it’s theoretical because the Renminbi is a blocked currency – would be the Renminbi in 20 years. 

Someday it might be gold, but I don’t think gold would last very long. 

Q: What about the ASEAN Currency Unit that China, Japan and Korea are trying to put together … could that fill the bill?

Rogers: I don’t think it could do it because, first of all, it doesn’t exist. Second of all, it would take awhile for it to exist.  And third, most people wouldn’t use it, not for a while until it had been more [fully] tested and proven, and people had experience with it. 

That’s one of the advantages of the Euro at the moment.  It’s been around for a while and people can spell Euro.  They know what it is, they think, so they’ll use it.

Q: On a related note, oil and the dollar are obviously intertwined since oil is priced in dollars. Yet hostile OPEC members are already pricing oil in Euros or in a basket of other currencies. Will this continue to exacerbate the decline of an already historically weak greenback?

Rogers: Yes, that’s happening already.  The Iranians, the Venezuelans…America’s enemies certainly understand the problem with the dollar and they’re trying to exploit it.  Or [they are] trying to figure out how to exploit it. That’s going to continue. 

A hundred years ago, everything was priced in sterling.  Well, nothing’s priced in sterling anymore. The same thing’s going to happen to the dollar. 

The initial stages are happening already.  The Iranians already take Japanese yen for their oil.  The Venezuelans are starting to take Euros.  Like most of these things, it will accelerate as the problems get worse.

Q: Is what we’re going through now just another in a long line of crises, or potentially one of the most pivotal crises that we’ve seen in the last several hundred years when measured in terms of an economic future?

Rogers: I moved to Asia because my daughters are going to grow up in the 21st Century, and I think they’re better off in Asia than in the U.S.  They’re certainly better off at least knowing about Asia … knowing Mandarin.  No matter what happens to them, they certainly could spend their whole lives in the U.S., but I want them to have the exposure to – and the knowledge of – what’s happening in Asia because, in my view, Asia’s certainly the future. 

And I think that anybody born in 2003 or 2008 needs to understand Asia. They need to understand America, too, but I cannot give my wife Paige and our children that knowledge [of Asia while] living in New York, or anywhere in America.

I can only give them that that knowledge and skill living in Asia.  So here we are! 

Q: Where do you see Russia fitting into this as it comes onto the scene?

Rogers: I don’t.  Russia will continue to disintegrate.  The Soviet Union has already broken up into 15 countries.  Putin controls Petersburg, Moscow, a few airports, et cetera, but Russia never has been a homogeneous [nation] – I mean, in the Soviet Union there were 124 – the "official" number was 124 – ethnic, linguistic, religious, historic and national groups. 

It’s broken up into 15 states.  It’ll be 50 … it’ll be 100 [states] before it’s over.  Ukraine may break up next.  Who knows who’ll break up [after that]?  Maybe even parts of Russia. 

To the bulls who say I’m wrong, my rejoinder is this: Let me ask you about Chechnya.  The Russians have been trying to deal with Chechnya for 15 years with no success. 

Chechnya’s the size of Connecticut.  Chechnya has a million-and-a-half people.  If they can’t handle Chechnya, how is the Soviet Union, or Russia, going to handle these other places that are pulling away? 

There’s capitalism there, but it’s outlaw capitalism.  If you’re good with dealing with the Mafia, you can probably make a fortune, if you’re on the ground [there].  For the most part, they have a lot of natural resources, which has been great. 

They have huge foreign reserves, but they’re stripping the assets. 

They’re not reinvesting for the most part in productive capacity.  They’re stripping the assets.  You know, oil production has peaked in Russia, even though there could conceivably be gigantic amounts of oil there somewhere.  Nearly everything has peaked, because they have been stripping the assets, rather than reinvesting. 

Q: Do you see the stripping phenomenon in the Middle East, as well, or do you think that there’s staying power there, as some suggest?

Rogers: So far, they’re stripping.  Nobody’s put a lot of money into rebuilding their fields or finding major new reserves.  They may not be there.  We may have found all there are.  I don’t know. 

Saddam Hussein certainly didn’t.  And the Iraqis certainly are not now.  Saudi Arabia has announced for 20 years in a row that they have 260 billion barrels of oil in reserve.  It’s astonishing.  The figure never goes up and it never goes down.  They have produced dozens of millions – billions – of dollars of oil in that period of time. 

If you go to Saudi Arabia, you have to wonder: "How could this be?  How could it be that every year for 20 years in a row, you always have 260 billion barrels of oil in reserve?"  The Saudis say: "You either believe us or you don’t."

And that’s the end of the conversation. 

Now, I’m not a geologist, and even if I were, I’ve never been to the Saudi oil fields, because they don’t let people go there.  But I know that every oil company in the world has declining reserves. 

Every oil country in the world has declining reserves except Saudi Arabia.  And I know that every oil company has declining reserves.  So unless somebody discovers a lot of oil very quickly in very accessible areas, the surprise is going to be how high the price stays, and how high it goes. 

Now the Middle Easterners don’t seem to be doing much.  Libya has said: "Well, we’ll bring back in the oil companies."  They’re starting to try. Most countries nationalize their oil companies over various periods.  And they have not proven to have the expertise or even the drive to do something, except sort of exploit the assets, strip the assets. 

So even if the oil is there, it’s going to take awhile [to access commercially].  From what we read, Saudi Arabia’s been pumping a lot of water into its fields, which shortens the lives, so I mean, I don’t know.  Because as I say, they don’t let you go there.  But don’t sell your oil. 

We’ve advised our readers to be long oil, long resources and long commodities in general. The equation was very simple: The world is depleting resources roughly four times faster than they’re being replaced. And, with oil in particular, unless you’ve got a few million years to wait, Mother Nature’s not making [any more] any time soon. 

Story continues below…

Sign up right now, and we’ll send you an important new report for free: “The Three Best Investments in Asia.”

Q: What do you say to the oil bears?

Rogers: There are a lot of experts out there who did not see this coming, and now claim to be even bigger experts, and have been wrong year after year after year. 

For example, there’s a very successful mutual fund manager [who] totally missed the commodities boom.  After having missed it, it’s like most things. He says: "Let’s just ignore it." Then [he] laughed at it. Then wrote papers explaining why it’s wrong.  Now [he] says nothing. 

Well, I know he’s buying!

That’s usually what happens with people.  They turn around and say: "Oh, I thought of it!"   You know?  "I knew this was coming."  He has told people for years that there’s an infinite supply of oil. 

But unless he can show us where all this oil is and where it’s replenishing itself in the meantime, the world is running out.  If it’s true, I would like for him to show us where the oil is, because I want to buy it, too, you know?  I want to go in and buy all I can.  So far, he’s just changed the subject.  Doesn’t mention it anymore. 

Q: Before I close, given the successes that you’ve had – and continue to have – in your life, what advice do you have for keeping sharp mentally and for living the kind of life you want to live?

Rogers: Follow your own passions.  Whatever they are, no matter how ludicrous they may be, follow your own passions. 

People who follow their passions, don’t get up and go to work every day.  They can hardly wait to wake up, so they can have fun.  They’re truly excited about what they’re doing.  They never go to work. 

[Editor's Note: This is the second installment of a two-part series based on Money Morning Investing Director Keith Fitz-Gerald's interview with investing guru Jim Rogers. In Part 1, Jim Rogers predicted more pain for the U.S. dollar and the possible failure of the U.S. central bank. To learn more about an offer that includes a free copy of Rogers' new bestseller, "A Bull in China," please click here].

News and Related Story Notes:

• Money Morning Interview:
  Jim Rogers: More Pain for the Greenback, and the Failure of the Federal Reserve.

• Money Morning Investment Research Report:
  (Jimmy) Rogers and Me: The Latest Wisdom From a Global Investing Guru.
• Wikipedia:
  Singapore.

• Wikipedia:
  Asian Currency Unit.

• Wikipedia:
  Chinese Renminbi (yuan).

• Wikipedia:
  The Chechen Republic (Chechnya).

• Wikipedia:
  U.S. Civil War.

• Money Morning Investment Travelogue:
  Snapshot From Singapore: In This Asian Tiger, Tiger Attacks Have Given Way to Construction and Capitalism.

• Money Morning Economic Analysis:
  As Sovereign Wealth Funds Flourish, Russia Looks to Change the Playing Field.

• Investopedia:
  Blocked Currency.

• Wikipedia:
  Mandarin.

Story continues below…

Sign up right now, and we’ll send you an important new report for free: “The Three Best Investments in Asia.”

SINGAPORE – By bailing out Wall Street and applying "band-aids" to the economy, the U.S. Federal Reserve may well be causing its own downfall – even as it hastens the demise of the greenback as a viable global currency, investment guru Jim Rogers told Money Morning during an exclusive interview.

Because of such strategic missteps, U.S. consumers could be facing a long and painful economic malaise, similar to the "lost decade" of 1990s Japan, or the stagflation-riddled 1970s in the United States, Rogers said.

Make no mistake: If that happens, there are two clear culprits – current Fed Chairman Ben S. Bernanke, and his predecessor, Alan Greenspan.

Bernanke "and Greenspan together will probably bring [about] the end of the Federal Reserve," Rogers said during the interview in this Southeast Asia city-state. "We’ve had two central banks in America that failed [and] this third central bank will probably fail, too, because of Bernanke and Greenspan. The Federal Reserve [just] put $200 billion more onto its balance sheet of mortgages. Now I don’t know how big they can expand their balance sheet, but if they keep doing it, there’s only so much – and they just bought Bear Stearns (BSC)."

Story continues below…

Sign up right now, and we’ll send you an important new report for free: “The Three Best Investments in Asia.”

Rogers first made a name for himself with The Quantum Fund, a hedge fund that’s often described as the first real global investment fund, which he and partner George Soros founded in 1970. Over the next decade, Quantum gained 4,200%, while the Standard & Poor’s 500 Index climbed about 50%.

It was after Rogers "retired" in 1980 that the investing masses got to see him in action. Rogers traveled the world (several times), and penned such bestsellers as "Investment Biker" and the just-released "Bull in China." And he made some historic market calls: Rogers predicted China’s meteoric growth a good decade before it became apparent and he subsequently foretold of the powerful updraft in global commodities prices that’s fueled a year-long bull market in the agriculture, energy and mining sectors.

Given Rogers’ prescience – not to mention all the uncertainty facing U.S. investors right now – we thought it was well worth a sit-down with the noted guru, even though it meant traveling all the way to Singapore, where he now lives with his family, to do so.

During that interview here in Singapore, Rogers also said that:

• Although the United States faces perhaps its most daunting economic challenges in at least a generation, "in America, most people do not understand that there is a problem."
• Because of these weak-dollar efforts – as well as the billion-dollar bailouts – "America is now the largest debtor the world has ever seen."
• Although the central bank seems intent on engineering a U.S. economic rebound by creating an ultra-weak dollar, no country in history has ever emerged from a serious financial crisis by "debasing its currency."

The bottom line: The strategies that the central bank is currently employing are nothing short of "outrageous," Rogers said.

"You know, I’ve read the Federal Reserve Act," he said. "Nowhere does it say [the central bank is] supposed to bail out investment banks! Nowhere does it say you should bail out Wall Street. Their mandate was to have a sound currency, and then it was later expanded to have employment – to help employment. But nowhere does it say: ‘Bail out investment banks.’"

Let’s take a look at some of the highlights of the Money Morning interview with investor and author Jim Rogers.

Keith Fitz-Gerald (Q): There’s a confluence of money flowing into and around China.  Do you believe that the U.S., with all its current problems, will get left out?

Jim Rogers: Absolutely.

The U.S. dollar is a terribly flawed currency.  I’m trying to get all of my money out of U.S. dollars.  I don’t know why anybody would put money into the U.S. dollar, and by extension into the U.S., as we stand here today. The U.S. is probably the largest debtor nation the world has ever seen!

The United States’ foreign debts are increasing at the rate of $1 trillion U.S. dollars every 15 months.  U.S. foreign debt is over $13 trillion, and rising rapidly. It’s the official policy of the central bank to debase the currency. They’re trying to drive down the value of the dollar. 

Q: The government has succeeded wildly, so far.

Rogers: You haven’t seen anything yet! 

They’re trying to drive down the dollar. I’m trying to be patriotic. I’m trying to sell dollars. That’s what they want. I’m trying to help them drive down the value of the currency. 

All Americans should. There are certainly probably good reasons to put some money in dollars. For instance, if you have to buy cotton, you have to have dollars.

But for the most part – I, anyway – am joining other people who’re trying to avoid the U.S. dollar, because Washington has sent a very clear signal: "We want the dollar to decline. We’re gonna do our best to make it decline."

Well, everybody has to make their own decision. I’m trying to do what the Federal Reserve wants me to do, and I’m selling dollars. 

Q: My take is that former Fed Chair Alan Greenspan and current Fed Chairman Ben S. Bernanke may go down as the worst central bank chairmen in history. Do you see it differently?

Rogers: [Bernanke] and Greenspan together will probably bring [about] the end of the Federal Reserve. We’ve had two central banks in America that failed. This third central bank will probably fail, too, because of Bernanke and Greenspan. 

The Federal Reserve last week put $200 billion more onto its balance sheet of mortgages.  Now I don’t know how big they can expand their balance sheet, but if they keep doing it, there’s only so much – [and] they just bought Bear Stearns. 

There’s just so much they can do. Maybe that balance sheet is infinite. I doubt it. And it can be said to be infinite; they just print money like Zimbabwe or someplace. But that has to come to an end, eventually. 

Maybe Bernanke is going to get into his helicopter and fly around collecting rents now.  Maybe when they repossess all the property, he’s going to be the rent collector. But then when they eventually take on all the car loans, I guess he’s going to be collecting car payments, too. And credit card debt, when they take over all the credit card payments, I guess he’ll be hauling us all out saying: "Your credit card’s overdue." 

This is insanity.

Q: Is there a circumstance under which you could see the U.S. recovering, or do you think this country is doomed to be an economic also-ran?

Rogers: Historically, nations that have gotten themselves into this kind of situation have only gotten out following a crisis or a semi-crisis, or some gigantic stroke of luck.

The U.K. got out because they discovered the North Sea. Now you give me the largest oil field in the world, or one of the largest oil fields in the world, I’ll show you a good time, too. 

So if you have a stroke of luck [you can escape these kinds of problems], but otherwise, nobody’s ever sorted out these problems without some kind of gigantic crisis or semi-crisis first. 

In America, most people do not understand there is a problem! The few who know there’s something going on don’t understand what it is. Most of them who understand it actually think it’s good that the currency’s declining. America’s not going to do anything until things get very, very bad. 

Others that offer the rejoinder to this – that the declining dollar makes America competitive – [that] has worked in the short term. But no country has ever restored itself by debasing its currency, not in the long term, not even the medium term.

Many places have tried to debase their currency as a solution. It’s never worked, other than maybe in the short-term, for a while.

Q: Are we looking at a Japanese-style lost economic decade?

Rogers: The Federal Reserve is making the same mistakes that the Japanese made.  They’re trying to say: "We won’t let anybody fail. We’ll print a lot of money. We’ll drive interest rates to zero. And we don’t want anybody to fail. We’ll put on as many Band-Aids as we have to." 

Well, putting Band-Aids on a cancer patient is not a good solution. 

So whether it’s like the ’90s in Japan, or the ’70s in America, remains to be seen.

[One-time U.S. Federal Reserve Chairman] Arthur Burns, who headed the central bank in the ’70s, did exactly what Bernanke’s doing. He raced in and printed money and said: "Oh, everything’s gonna be OK." 

But the economy never recovered, inflation went through the roof, and the dollar was under duress. Eventually they had to bring in Paul Volcker and interest rates went over 20%. And eventually they killed inflation and they solved the problem. 

They’re making exactly the same mistakes that Burns made. For whatever reason, though, this problem is going to last longer than previous difficulties in America. And it’s probably going to be worse. 

Because, now, America is a debtor nation. Now we’re the largest debtor nation in the world. At least in the ’70s, we were still a creditor nation. Japan could survive because they were the largest creditor in the world at the time. So they didn’t fall off the face of the earth. 

America’s now the largest debtor the world has ever seen. What’s happening in the U.S. is not going to be fun.

Story continues below…

Sign up right now, and we’ll send you an important new report for free: “The Three Best Investments in Asia.”

Q: Should the Fed be stepping in like it has in recent months?

Rogers: It’s outrageous that Bernanke’s sitting there. You know, I’ve read the Federal Reserve Act. Nowhere does it say [the central bank is] supposed to bail out investment banks! Nowhere does it say you should bail out Wall Street. Their mandate was to have a sound currency, and then it was later expanded to have employment – to help employment. But nowhere does it say: ‘Bail out investment banks.’

Investment banks have been failing for centuries.  The world hasn’t come to an end… even when investment banks have failed. They just caused a setback, and so what!

Recessions are usually good for the system. They clean out the excesses. And my God there’ve been excesses on Wall Street in the past 10 years. You don’t see a bunch of 29-year-old cotton farmers driving around in Maseratis and flying in private planes to exotic locations. Well, you see a lot of guys on Wall Street doing that. 

And the idea that we’re now supposed to bail them out is ludicrous! I don’t see any of those guys sending their bonus checks back.

Huge amounts were made in the debt markets. We now know [that money was made] at least incorrectly, if not fraudulently, and yet, now we’re supposed to bail them out. It’s bad enough they get to keep their money. But the outrageous part is that it will cost more to try to prevent a recession than to have the recession. 

We have safety nets in place, now. We did in the ’70s in America and the Japanese did in the ’90s. I think there’s good evidence that it will cost more to try to prevent the problems than to have the problems. 

Q: That’s a very interesting thought that had not occurred to me before. 

Rogers: Well, we’ll see if it’s right.  In nature, there’s the natural phenomenon of forest fires. The forest fires are pretty terrible when they’re going on. But nature invented them to clean out the forest so that the forest could then come and grow from a new, sound foundation. That’s what recessions do, too. They’re a natural phenomenon. 

Nobody likes it when we have them any more than anybody likes a forest fire. But in the end, everybody’s better off. Bernanke thinks he can stop this; he’s going to very well destroy the system by trying to save it.

Q: Could you see a segment of the financial system surviving this? Or do you think that there will be such catastrophic change that we won’t recognize it till several years from now?

Rogers: Ask me again in five years, 10 years. That was true after the ’30s, certainly.  It was true even after the ’60s. Very few people went to Wall Street in the ’70s, very few.  A whole generation ignored Wall Street in the ’30s and in the ’70s. 

Will that happen again?  Probably, because of things we’ve been discussing. 

So there will be big changes, of course.  If you’re in the field that deals with – and works out – bankruptcies, you’ve got a great future – on Wall Street, or in the legal profession.  If you’re in commodities, you have a great future. Some sectors of the financial community are going to do well. Many others are going to disappear and/or do badly.

Q: How low could the dollar go?

Rogers: I have no idea. You just have to watch it as it evolves. Politicians and bureaucrats can do unbelievably stupid things, and have [done so] throughout history. 

They will usually do things that are so stupid nobody can believe them, but it happens.  You have to watch and see as it goes.

[Editor's Note: This is the first installment of a two-part story based on Investing Director Keith Fitz-Gerald's interview with investing guru Jim Rogers. In the second installment, Fitz-Gerald will explore China's potential, the energy sector and the Middle East, and the global commodities boom. To learn more about an offer that includes a free copy of Rogers' new bestseller, "A Bull in China," please click here].

News and Related Story Notes:

• Money Morning Economic Analysis:
  With Bear Stearns Deal and New Game Plan, Fed Raises New Fears About Credit Crisis.

• Money Morning Market Analysis:
  Fed Plan Sends Dow Soaring Over 400 Points.

• Money Morning Investment Research Report:
  (Jimmy) Rogers and Me: The Latest Wisdom From a Global Investing Guru.

• Wikipedia:
  Singapore.

• Wikipedia:
  Arthur F. Burns.

• Wikipedia:
  Paul Volcker.

• Money Morning Investment Travelogue:
  Snapshot From Singapore: In This Asian Tiger, Tiger Attacks Have Given Way to Construction and Capitalism.

A year ago, a share of The Bear Stearns Cos. Inc. (BSC) would have cost you $150.

Yesterday, the shares closed at $11.26 – and that’s after they soared 90% from the opening bell price on news that JPMorgan Chase & Co. (JPM) had boosted its bid.

The "why" has already been discussed, but no one seems to be concerned about the "how" right now, particularly where white knight JPMorgan and the U.S. Federal Reserve are concerned.

On the surface, this tie-up is being billed as a bailout to avert another crisis on Wall Street. However, upon closer examination I think it’s more evidence that the Fed suffers from "attention to deficits disorder."

I put this very question to Jim Rogers during an exclusive interview last Saturday in Singapore.

Mr. Rogers stated: "I’ve read the Federal Reserve Act. Nowhere in it does it say you’re supposed to bail out Wall Street. Their mandate was to have a sound currency and it was later expanded to help employment. But nowhere does it say you’re supposed to bail out investment banks."

Story continues below…

Sign up right now, and we’ll send you an important new report for free: “The Three Best Investments in Asia.”

Then, as Rogers is well noted for doing, he put it more bluntly: "You don’t see a bunch of 29-year old cotton farmers driving around in Maseratis and flying in private planes to exotic places."

He continued, "You see a lot of guys on Wall Street doing that and the idea that we’re supposed to bail them out is ludicrous. I don’t see any of those guys sending their bonus checks back. Huge amounts of money were made in the debt market we know now incorrectly, if not fraudulently… and now we’re supposed to bail them out?"

"It’s insanity," Rogers said.

(I’ll have Mr. Roger’s complete comments on this and a number of related global investing topics in an upcoming installment series so stay tuned.)

Here at Money Morning, we couldn’t agree more with Mr. Rogers, which is why we think all is not what it seems with the Bear Stearns/JPMorgan deal, any more than we did with the Bank of America Corp.’s (BAC) buyout of troubled mortgage lender Countrywide Financial Corp. (CFC).

So, let’s tally up the winners and the losers.

JPMorgan didn’t get Bear for the original paltry $236 million offer, but $1 billion isn’t bad. Especially when you consider JPMorgan will get complete access to Bear’s operations, including the legendary prime brokerage and clearing operations, which are regarded as crown jewels. JPMorgan will also get Bear’s brand spanking new Madison Avenue office tower that could be valued north of $1 billion on its own.

Meanwhile, as part of the deal the Fed ponies up another $30 billion to guarantee Bear’s more "illiquid assets" (read: toxic sludge) – so JPMorgan doesn’t have to trouble itself with actually running a failing business.

Which begs the question: Why can’t somebody do that for millions of Americans who are having trouble making ends meet right now as a result of all this?

The bottom line is that there’s nothing "Federal" about this crisis today any more than there was a year ago when we began sounding the alarm bells and taking a more defensive posture.

Even though it’s being spun as a good thing, by stepping into the fray yet again, the Fed is involuntarily forcing you and me and every other taxpayer to act as guarantors.

And then there are the insiders.

The former CEO Mismanagement Club, including members Chuck Prince, Stanley O’Neil and Angelo Mozilo are walking away with hundreds of millions, after almost single-handedly destroying an entire industry and perhaps even wrecking our economy in the process.

And what about the timing?

The Fed – Bear Stearns – JPMorgan triad came together literally over the weekend. And you don’t just crank out a deal like that overnight, no matter what anybody says about burning the "midnight oil."

There are many who will argue that saving Bear Stearns staves off a wave of defaults from other interconnected borrowers and lenders. That it somehow gives the system "breathing room to pay off Bear’s debts gradually" as Business Week’s Matthew Goldstein so eloquently put it.

I’ll concede that it might… if we are really lucky.

My concern, however, is that the cost of trying to prevent a recession will ultimately cost us more than simply enduring one.

News and Related Story Links:

• Money Morning:
  JPMorgan Raises Bear Stearns Bid

• Money Morning:
  Bank of America Will Buy Countrywide for $4 Billion in Stock