DOWN WITH CAPITALISM!

Not our words, but the tone of fellow-commodity trader, Jim Rogers when he spoke to the BBC in London earlier this week. He lambasted the Obama administration and especially the role of treasury secretary, Timothy Geithner, who according to Rogers, "has never been right about anything for 15 years. Listen to him and you'll probably go bankrupt," quipped Rogers who has never been shy about on the subject of his distaste for big government.

The way Jim sees it the capitalist system broke when politicians become addicted to policies of taxing, borrowing and spending. Preventing the weakling banks from imploding on themselves leaves the economy sitting with lame ducks and serves no purpose other than to create a moral hazard through the reward of incompetence.
 
By intervening and lending a hand to banks that would undoubtedly have failed, the government has very likely created an L-shaped recession similar to that experienced by a Japanese government throughout the 1990's when it failed to force its banks to admit the scale of their rather sizeable rotting loan books. Jim Rogers has an admirable kill or cure approach that he says has worked well throughout history. But the current approach in which banks can hobble along will leave the economy weak for years to come.
 
What the economy needs is rejuvenation. Mr. Rogers pointed to the record throughout history in which gigantic catastrophes have occurred, yet major financial centers lived beyond these and went on to a better place as a result.
 
A survey by Britain's Securities & Investment Institute this week revealed that those banks considered "too big to fail" should be reined in and forced to shrink according to two-thirds of respondents. Some of those responding said that being "too big to fail" only encouraged moral hazard by its management.
 
We wonder what Jim Rogers might have said in response to the political suggestion tossed into Tuesday's media that President Obama is mulling the option of letting delinquent homeowners give up ownership of their home in return for being allowed to remain renters for a period of several years.
 
Without a shadow of a doubt the failure of more banks would have resulted in higher unemployment than the current 9.5% (and rising) rate. Such a calamity would likely have resulted in deeper and probably longer-lasting wealth destruction. House prices, despite the fact that they are still largely in decline, would likely shrink further. What then for capitalism?
 
We only ask this rhetorically and we'd broadly agree with Jim Rogers that bank failure should have rewarded those who took risks and failed, those whose greed got the better of them. The unwitting victim is indeed the common man -  the homebuyer who for too many years had it spoon-fed to him that rising house values could continue ad infinitum. If you can convince people that all prices are a function of supply and demand, you have yourselves an audience.
 
Sadly this dreamy audience of homeowners was duped into believing that dwellings were in short supply while population growth would only increase demand. In reality it was the supply of available mortgage funding that was what drove property prices higher, make no mistake about that.
 
Jim Rogers' final piece of logic is that commodity prices will benefit whether the economy recovers or not. That's music to our ears. Should the various government plans and stimulus measures take hold, global demand for basic raw materials will only increase and lead to higher prices. The penalty for failure would, however, be massive inflation and so benefit hard assets as investors grab coffee, cocoa and crude oil with both hands in a bid to stay afloat amid a scenario of surging interest rates and a sliding dollar.
 
Capitalism may have its political flaws, but we're glad to tell you that it's not quite dead just yet.

The Supreme Council of the Secret Order of Jurojin