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. 

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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.

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As you might imagine, I have been inundated with telephone calls and e-mail messages from investors who are trying to understand exactly what’s happening in the world’s financial markets right now.

Needless to say, little of this has been a surprise to us here at Money Morning. We’ve warned that the subprime-mortgage fallout would have real staying power, that the dollar would continue to sink and oil prices to rise, that inflationary pressures would take hold, and even that some of China’s hotter stocks would correct. Several of these are issues I’ve been warning investors about for years.

In my columns and during presentations I’ve made across the country, one of the key points that I reiterate time and again is the importance of diversification. By diversification, I’m referring to the importance of keeping your money in front of factors that matter, while avoiding those that don’t. And my idea of diversification is worlds away from the shtick that Wall Street’s Armani Army trumpets over and over again.

Let me explain …

In the late 1990s, for instance, many investors "diversified" into tech – which sent them off the cliff like the lemmings they were when the dot-com bubble imploded in 2000. Many of those folks still aren’t back to even. And some were burned again this summer when an over-reliance on "safe" tech stocks caught up with them: Techs stumbled and gave their portfolios a nice haircut.

And while it looks as if the U.S. Federal Reserve may try to bail them out – you can’t be certain that a rate-cut-fueled rebound will get you back to even.

Besides, why struggle to recoup your losses when it’s so much easier just to stay ahead of such nasty reversals in the first place. Not only do you keep your risks at a minimum and avoid losses, you also position your investments to generate massive profits when the powerful global forces that we key on send your stocks higher.

To diminish your risk exposure while positioning yourself for the inevitable rebound, here are some moves investors should make right now:

1. Mix in Safety and Balance: When markets correct, volatility soars. We saw that happen in 1987, after the Dow Jones Industrial Average dropped a staggering 22% on Black Monday, having learned that international monetary flows really were linked. That means that the gyrations we’ve been experiencing in recent weeks are likely to continue for some time to come. With the so-called "decoupling" of global markets still in its early stages – and world markets as highly correlated as they are right now – don’t ever forget that what happens in one market, will usually be replicated in others.

2. Invest for Income: This is yet another investing truism investors have either forgotten, or have just chosen to ignore, falsely believing that income investing is "boring." Dividend-paying stocks outperform non-dividend paying stocks by even more in down markets than they do in up markets. What’s more, by consistently reinvesting dividends during down markets, investors can substantially expand their asset base, which puts them way ahead of the game when markets recover and stock prices soar – as they always eventually do.

3. Follow the Money: While Armani Army Analysts are lousy market prognosticators, there are two financial indicators that are well-worth following: Interest rates and currencies. In other words, while analysts can’t predict the markets, interest rates and currency prices often can. For instance, if bonds rally and interest rates decline, smart investors buy. But, if bond prices fall as stocks are falling, better make like "Chicken Little" and break out the umbrella, since it’s probably going to rain on your parade [if the sky doesn't fall, first].

4. Future Profits are "Made in China:" Every investor needs a China strategy. But with global markets currently in turmoil, a "safety-first" strategy is key. Although it’s tempting to invest "in" China-based companies, right now you’re better off buying shares of firms positioned to profit "from" China. In other words, with market risks so high right now, it’s far better to capture the profits of China’s growth by investing in globally diversified companies that are doing business in that emerging Asia nation. That gives you the benefits of China without exposing you to the risk of direct investments in an immature and substantially unregulated market.

5. Alternative Energy is No Longer Merely an Alternative: So-called "Big Oil" won’t cut it any longer. In terms of direct investments in the oil patch, look at the smaller firms that actually do the work. That way, regardless of how much – or how little – oil is actually out there, you will profit from the firms who process, refine or move the crude. Also, look at established companies profiting from oil alternatives. The re-emergence of commercial nuclear power is a good example.

Far too many investors stick with the money-losing strategies pushed by Wall Street simply because that’s how "everybody does it." Those investors fear that any change will get them into areas that are too sophisticated to understand and manage.

But that’s just flat out wrong.

The strategies we advocate are actually elegant in their simplicity. And, as my experience has demonstrated over and over, the simplest strategies are often the best and can produce head-spinning profits no matter what kind of market we face.

How can you argue with that?

News and Related Story Links:

• Money Morning:
• How Dividend-Paying Stocks Can Help You Tame the Bear

• Money Morning:
  U.S. Dominance Bites the Dust: How Wall Street Sold Itself Down the River

• Money Morning:
  Foreign Markets Slump, But U.S. Markets Gain

• Reuters:
   Wall Street rallies on hope for Fed rate cut

• CNNMoney.com:
  What’s the Definition of a Bear Market?

• Bloomberg:
   Stocks Fall in Europe, Asia, U.S. Futures Drop; Total Declines

It wasn’t quite the Bin Laden trade we wrote about months ago, but at $7.14 billion, it was noteworthy.

We’re referring, of course, to the trades taken by 31-year old trader Jerome Kerviel, former employee of Societe Generale SA (SCGLY). In recent months, he made nearly $73.5 billion in trades on bets he placed on European markets – including contracts on the Dax, Eurostoxx and FTSE indices.

The sad thing is that according to several anonymous sources, Kerviel, who assembled the massive trades while betting on declines in the markets during 2007, was making the right bets. In fact, one source suggested that he only took on fictitious losing positions to cover up the winners he’d built up. And those losing positions are what ultimately caused the $7.14 billion hit to SocGen’s balance sheet.

Publicly, Societe Generale doesn’t agree.

Chief Executive Officer Daniel Bouton stated that Kerviel set up a fictitious company, which fronted losing futures trades. Bouton also indicated that Kerviel hacked company computers and control procedures to elude detection.  SocGen management is going above and beyond to make the results of the ongoing investigation public.  More details will likely come out for days to come.

In a bizarre twist, those close to the investigation, speaking anonymously, say that it doesn’t even appear Kerviel had or would have profited from his gains – something Bouton confirmed in statements last week.  It seems Kerviel’s motivation was fame, not money: He wanted to be a star trader and run with the big dogs, when he should have just stayed on the porch.

If all of this is correct, it stands in stark contrast to the $1.4 billion trade in 1995 that all but wiped Barings Bank from the face of the earth. Singapore-based trader, Nick Leeson, was badly upside down and losing money for his employer, while pocketing an estimated $35 million in his own personal accounts. Using loopholes so wide you could drive a truck through them, Leeson managed to run up massive trading losses that equaled Barings entire assets, forcing the long-standing bank into bankruptcy. [Incidentally, Barings, which literally funded the Napoleonic Wars, was subsequently sold to Dutch giant ING Greop N.V. (ING), for a single British pound, just $1.98 at today's exchange rates.]

It also runs contrary to a similar trading scandal in Japan in the late 1980s when trader Yasuo Hamanako, known as "Mr. Five Percent" because he was believed to control five percent of the global copper markets, blew through $2.6 billion of Sumitomo’s assets while trying to corner the copper markets.

Or the $4 billion in losses at Long Term Capital Management which cratered spectacularly when Russia defaulted on government bonds in 1998 and forced interest rate differentials between risk free assets and other government paper to increase sharply.

Then, there was the $6.6 billion Amaranth debacle. Energy trader Brian Hunter got upside down on natural gas positions that triggered massive losses when the company had to cover them.

For now, Societe Generale has a large enough balance sheet to take the hit, but it’s had to seek an $8 billion capital infusion in the process. Like Barings before it, the French bank is now vulnerable to takeovers, but as Bouton acknowledged, "It wouldn’t be the first time."

Nor the last… at least not when it comes to the litany of spectacular financial blowouts.

Despite the fact that the world is now clamoring for more oversight and controls, we suggest that no amount of regulation will help. Clever traders will always find ways to game the system and their supervisors will unwittingly encourage this behavior by maintaining the outrageous bonus structures and payouts for which Wall Street is now synonymous.

The old adage, "where there’s a will, there’s a way" is unbelievably true when it comes to the financial markets.

We think regulation is a moot point: The markets will eventually sort this out on their own, with the winners and losers ultimately self-selecting in a form of financial Darwinism.

News and Related Story Links:

• Money Morning:
  This $900 Million Bet Has Global Traders Talking

• Money Morning:
  The ‘$900 Million Conspiracy’ Trade That Wasn’t?

• Money Morning:
  Rogue Trader Costs Societe Generale $7.2 Billion