The Federal Reserve celebrates its centennial, but after 100 years will the United States central bank meet its demise? According to finance guru and contrarian investor Jim Rogers, the collapse of the Fed is “a probability” rather than a possibility.
Rogers spoke with Mineweb last week in which he warned that the Fed could very well come to an end within the next 10 years. The ending of the Fed will be because “people will realize that these guys have led us down a terrible path.” One of the primary reasons is the fact that the Fed’s balance sheet has skyrocketed by 500 percent in the last five years and “a lot of it’s garbage.”
When Fed Chair Ben Bernanke steps down later this month he will be likely remembered as the man “who set the stage for the demise of the central bank in America.” He added that there have been three central banks in the U.S. history; two disappeared and third one will as well.
“100 years ago you could not have named the head of most central banks in the world,” Rogers told online news publication. “Now they're all rockstars. Everybody knows them,” Rogers explained. “But that's only a phenomenon of the last 20 years, when central banks have been pumping money into the markets and everybody's singing hallelujah.”
Prior to the Christmas holiday, the Fed announced that it would be tapering its aggressive $85 billion-per-month bond-buying program by $10 billion. Although many see this as a positive for the overall U.S. economy, Rogers is quite skeptical in the long-run.
“The US went up because people said, 'Now it's done, we don't have to worry anymore.' But somewhere along the line, markets are going to start suffering. They'll taper until the markets start hurting and then they'll panic and loosen up again. They've got themselves in a terrible box.”
Inflation will remain rampant across the globe. Rogers cited the Japanese central bank and its commitment to printing vast sums of money. “When people look back 20 years from now they'll say that's what killed Japan, but in the meantime, all the staggering, unlimited amounts of money have got to go somewhere and it's going to go into Japanese shares.”
When it comes to gold, Rogers prefers gold to gold mining shares. However, he noted that there isn’t anything in the precious metals market that he is interested in at the present. One of the biggest delinquencies in the gold market, says Rogers, is Indian import tariffs.
“They've got a huge balance of trade deficit and the three largest parts are oil, gold and cooking oil,” stated Rogers. “They cannot do anything about oil or cooking oil, so they're attacking gold, blaming their problems on gold. Gold has not caused their problems, gold is a symptom of their problems, but politicians are pretty simple-minded people and they look for the easy answer.”
In the long-term, Rogers feels gold will be the last refuge for investors everywhere. In the end, he’s bullish on gold in the long-term and will short junk and government bonds.