Jim Rogers: “The U.S. Federal Reserve Is Lying To Us”

David Zeiler: Despite statements to the contrary, the U.S. Federal Reserve has continued to pump money into the economy, says investing legend Jim Rogers. The resulting low interest rates and creeping inflation, he says, are destroying the wealth of millions.

“[Federal Reserve Chairman Ben] Bernanke said last August he was keeping interest rates artificially low,” Rogers told Yahoo! Finance on Tuesday. “The only way you can do that is to go into the market.”

As proof, Rogers pointed to the rise in the broad M2 measure of the U.S. money supply, which has increased more than 5% since the Fed’s second quantitative easing program (QE2) ended on June 30, and 20% since November 2008.

“Since August – well, this whole year – the M2 has jumped up,” Rogers said. “They’re in the market. They’re lying to us.”

A well-known critic of the Fed who has called for it to be abolished, Rogers warned that the central bank’s policies would lead to disaster.

“Right now what the Federal Reserve is doing is ruining an entire class of people in America,” Rogers said. “The people who saved and invested for the past 10, 20, 30 years are now being ruined because interest rates are [too] low.”

He added that if he were Fed chairman, he’d raise interest rates to slow down inflation.

In a separate interview with The Street yesterday (Wednesday), Rogers said he considered the Fed to be the greatest risk to the U.S. economy in 2012.

“They don’t seem to understand economics or finance or currencies or much of anything else except printing money,” Rogers said.

Painful Remedies

The other major concern that Rogers has is the soaring federal debt, which recently passed $15 trillion.

“We are the largest debtor nation in the history of the world and the debts are going higher and higher by trillions, every two or three years,” Rogers said. “We’re all paying the price for it. And wait till 2013 – we’re really going to pay the price.”

The answer, he says, is for Americans to vote out the current batch of leaders for a group that will make the tough choices necessary to restore the nation’s fiscal health. But Americans might find that medicine hard to swallow.

“The risk is… after six months or a year or two of serious pain, those guys will get voted out, too,” Rogers says. “Because the public will say, “We didn’t want this much pain.’”

Jim Rogers’ Recommendations

With such a grim outlook, Rogers’ investing positions are mostly defensive at the moment.

“I’m long on commodities and currencies, short on emerging markets stocks, U.S. technology stocks and European stocks,” he said. “If the world economy gets better, I’m going to make money on commodities because of the shortages. If it doesn’t get better, they’re going to print more money – and you’d better own real assets.”

Regarding currencies, Rogers said he is long on the Japanese yen (NYSEARCA:FXY) and the Swiss franc (NYSEARCA:FXF), but would probably buy only the franc. He said he also has some exposure to the euro because in the near-term, he expects the Eurozone politicians “to do something to make everybody feel better about the euro.”

Rogers said he’s long on the U.S. dollar (NYSEARCA:UUP), as well.

Rogers likes commodities in general as a play on the economic growth in China (NYSEARCA:FXI).

“The Chinese need everything,” he said. “They have 1.3 billion people and they all want to live like you, so, you know, everything: cotton, wheat, oil, everything.”