Daily Austerity Watch: Jim Rogers Is Wrong About A U.K. Bailout

Jim Rogers may be what the media calls a “legendary investor”, but that does not mean he always knows what he is talking about such as when he argued yesterday on CNBC that the U.K. may need a bailout.

While the U.K. economy is faltering, it is a huge stretch to say that the country belongs in the same league as Ireland, Portugal or Greece.   For one thing, as of December 2010 the country’s general government debt was £1105.8 billion, equal to 76.1 percent of GDP, according to the Office of National Statistics.  The comparable figure in Ireland was 94.2  percent,    the figure in Portugal tops 83% and is  144 percent in Greece.    For the sake of comparison, the U.S. debt-to-GDP ratio is 58.9%,  in line with the worldwide average of 59.3%, according to The World Factbook published by the CIA.

Economists, on average, are expecting the U.K.’s GDP to grow at 1.7% this year, which though hardly spectacular it is only slightly under the European Union’s forecast of a  1.8% gain in real GDP n the EU and 1.6% in the euro area in 2011.   Ireland’s growth rate for this year is expected to be 1%.  Portugal’s economy is expected to contact as is Greece’s.   The Federal Reserve expects the U.S. economy to grow between 3.1 percent to 3.1 percent.

Now that the country has basked in the glow of the wedding of Prince William and Kate Middleton, residents of the U.K., it  can return to complaining about the economy. Indeed, voters vented their fury at the Liberal Democrats over the government’s austerity plans by handing the party humiliating defeat after humiliating defeat in recent local elections.

Though U.K. analysts argue that the existing austerity measures were sufficient, Rogers shouldn’t be dismissed too easily.   After all, he started trading the stock market with $600 in 1968. Four years later he formed the Quantum Fund with billionaire George Soros before retiring a multi millionaire at the age of 37.   By the way, Soros knows the U.K. well too having made a fortune shorting the pound in the 1990s.  Rogers  is correct that the U.K. economy needs to make some major economic changes, a feeling shared by officials there including Chancellor of the Exchequer George Osborne, who reiterated this point during a speech last month.

Over the past decade Britain fell behind, our economy became too unbalanced, while other countries made themselves more competitive.

Too much debt, not enough savings. In many regions, too big a public sector and too small a private sector. Too many imports compared to too few exports.

The household savings ratio plummeted.

Manufacturing halved as a share of our economy.

Between 2000 and 2009 Britain’s share of world exports fell by a third, while Germany’s share actually rose.

We need to step up a gear.

While the housing sector looks weak as does other economic data, it is far too early for the U.K.  to think a double-dip recession is inevitable,  particularly if oil prices stabilize.   The government, though, can’t afford to cave into political pressure and to turn on the spigots of spending.

Besides, wiseman on Wall Street are often wrong.   Consider this gem from 2008 about the bailout of the financial sector:  “History shows these plans don’t work. What does work is to let the market clean itself.”    Those comments came from  — you guessed it — Jim Rogers.   Though his views were not unique,  they were short-sighted. Most economists agree that the bailouts were needed and largely successful.

–Jonathan Berr