Breakout

Bailouts Can’t Save Europe, Failures Must Go Bankrupt: Jim Rogers

Breakout

If a think tank spent a full week brainstorming the best way to foment a culture welcoming of extreme nationalism and a dictatorial regime, they couldn't do much better than the euro zone. Economies built on debt inevitably fail with chaotic and often violent repercussions.

80 years after the fall of the Weimar Republic, human nature remains the same. The instinctive reaction to pain is to find a cause or scapegoat to blame and, in extreme cases, to eradicate. The surprise isn't that Greek Neo-Nazis captured 7% of the popular vote in last Sunday's election, but rather that it took so long for extremism to get a foothold.

The situation in Europe is unraveling at a growing clip, but investing legend Jim Rogers says there's still a way to avoid the worst case scenario. "My solution would be to let the people who have failed, go bankrupt—declare bankruptcy," Rogers explains. "The banks lose money, but then you start over; that's the way capitalism is supposed to work."

Avoiding short-term pain through activities like propping up "zombie" companies to avoid the pain of failure has one drawback: it has never worked in the history of economics. Japan has been doing it for decades, and the Nikkei remains 80% off highs made in the '80s.

The trick to avoiding a societal uprising or decades of an undead economy is controlling the descent into failure. Rogers' spin on the ring-fence plan is an EZ-wide proactive sorting of the entities allowed to succeed and fail in order to minimize the collective impact. Call it a socialized free market approach.

For now, Germany has the clout and money to coordinate such an effort. "If you wait two years from now, five years from now, when no government has any credibility and nobody will give you anymore money, then it's finished... you better get yourself a rifle and a bunker and head to Asia."

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