Jim Rogers' roaring success record

During these past six months, Jim Rogers, international money man and most effective mass media magician, has achieved the status of a sage on the Bloomberg screen.

As a Wall Street man, he co-founded the Quantum Fund, a global investment partnership, which, during the 1970s gained 4,200 per cent, while S&P rose less than 47 per cent. In the 1970s, Wall Street hardly returned any profit whatsoever. Rogers has been tracking the Chinese economy since he first went to China in 1984.

In this interesting period, its growth rate has averaged nine per cent. The Chinese saving rate is over 35 per cent, while in the US it is two per cent. It also happens that 40 per cent of China's output goes to exports producing a trade surplus. Foreign debt is no problem, and it has developed an enormous sovereign fund of over $1 trillion. There is $60 billion a year of direct foreign investment. Rogers has not failed to note in his book A bull in China that China's fixed assets - ports, bridges and roads - double every two and a half years.

Rogers is now acclaimed as the man who emphasised capitalism's new Far Eastern orientation. His thesis and practice has received a confirmation from Stephen Green, group chairman of HSBC Holdings, who stated this week that the new centre of gravity of the world's financial markets will no longer be London or New York but the Far East. These are losing their credibility fast and they will lose it faster once the general public becomes aware what lies exactly behind the unfolding chaotic Dantesque inferno scene of subprime bank malfeasance. Banks have betrayed their trust, and this has happened most heavily in Lehman Bros. UBS London is behind in the malfeasance game, even far behind, but it is still significantly to blame for the fact that the West's high temples of capitalism will never be what they were.

Thank Heavens HSBC was born and it flourishes in the Far East. It is escaping the worst buffeting of the present malfeasance induced firestorm. In December 2004 I referred to a Figaro editorial which said that a dangerous gap had developed between the monetary and the real side of the economy. Figaro said the same thing again this week. The world's money supply, because of over-generous bank loans was expanding faster than its productivity. The loans proved to be not only too generous, but, in some cases, downright criminal. To make matters worse, securitised mortgages did not appear on bank balance sheets as Basel regulations had created the mirage of 'off balance risks'.

There was nothing wrong or criminal in these subprime banking innovations as such, for they helped create the current, enormously affluent world capitalist society which we see pouring tourist wealth into this country. The criminals were comparatively few and far between, but they acted with deadly effectiveness because of the tightness of their organisation and the speed with which they implemented their nefarious deeds.

The subprime problem was only mentioned at the Davos international bankers' meeting last spring. In the previous year, when the financial subprime tornado was already menacing the world, not a word was said about it.

Writing in the FT on August 25, Larry Hathaway, the chief economist at UBS, warned against relying too heavily on an inflation model which belonged to a bygone era. Hathaway, like Phillip Manduca, is urging western governments to recognise that deflation and not inflation is public enemy number one. Bank malfeasance has destroyed money. This must be quickly addressed, otherwise there will be enormous world economic contraction.

Chinese hard work points the way, as Rogers has noted. The new money to be pumped into the economy must be underpinned by increased productivity and real goods, and not by those subprime nonsense loans which, in the majority of cases, were possibly not even translated into bricks and mortar.

Mr Azzopardi Vella, economic consultant with DBR Investments Ltd, has promoted the Malta Development Fund and advised S&P.

johnazzopardivella@hotmail.com