Biggest Supply Shock Since The 1970s? Harvard Economist’s ‘Painful’ Reveal | Kenneth Rogoff
Summary
Dollar Outlook: The guest argues the US dollar remains dominant but faces a long decline amid sanctions overuse and rising multipolar currency blocs.
De-dollarization: Increasing RMB invoicing (e.g., Iran’s yuan tolls) and Europe’s push for the euro point to a shift toward a multipolar system.
Energy Shock: A potential 1970s-style oil and energy supply shock from Middle East tensions and Hormuz disruptions could push rates and inflation higher.
Gold: While rejecting a return to a gold standard, the guest sees central bank gold demand as a lasting support for the metal despite wartime volatility.
Cryptocurrency: Bitcoin and stablecoins are increasingly used in sanctioned trade, eroding the dollar’s share at the margins.
FX View: He expects a weaker dollar ahead, with mean reversion likely versus the yen and won, and modest broad USD downside in 2026.
Globalization Debate: The guest defends globalization benefits, warning tariffs and fragmentation raise rates and risk financial spillovers.
AI and Regulation: AI could be a future positive supply shock, but he advocates tighter IP enforcement and environmental oversight to manage risks.
Transcript
I hope uh President Trump has three aces up his sleeve, but if he doesn't, it's distinctly possible this looks like a big win for Iran. We don't have to put tariffs on them. They're our allies. People who just say, "Oh, the dollar's king. Everybody loves the dollar. The dollar forever." They they haven't even looked at the post-war history. Our next guest is Kenneth Rogoff, professor of economics at Harvard University, former chief economist at the International Monetary Fund, IMF, and the author of his latest book, Our Dollar, Your Problem: An Insiders View of Seven Turbulent Decades of Global Finance and The Road Ahead. We'll be examining the road ahead for the US dollar. Will the dollar remain the global reserve currency? Will the US retain its global hedgemon status? And what is next for the world order? What is next for inflation and Fed monetary policy? All this will be examined with Professor Brogoff today. Welcome to the show, Professor. Good to have you. >> Thank you for having me, David. >> Among the many problems that our economy faces today is the rising debt issue, which Jerome Pal, Federal Reserve Chair, perfectly summarized in this video clip. Take a listen. >> What's clear is that our uh debt is growing much faster. The federal government debt is growing substantially faster than our economy. And that ratio is going up. And you know, in the long run, that's kind of the definition of unsustainable. The level of the debt is not unsustainable, but the path is not sustainable. And so, it's it's really important that we get back to we don't have to pay the debt down. We just need to to to have, you know, primary balance and and begin to have the economy actually growing better, growing more quickly than the economy. It will it will not end well if we don't do something fairly soon. This is not the Fed's job, of course, and I pretty much limit myself to those high level points which which essentially everyone ignores. >> It will not end well is his warning. What does that mean to you? >> Well, the uh eventually the US will run into trouble in the sense of interest rates will gradually rise. Maybe because the US debt is rising. Maybe because we're having war all over the world and it's rising. And we're when you're the world's biggest debtor by far and interest rates go up, it's painful. There are a lot of things we can do, but it's not clear we're prepared to do any of them. So, you know, certainly we can, as uh Chair Powell says, reduce our primary balance, which really would mean a much smaller deficit than we've been running, and keep our fingers crossed that interest rates don't go up too much. Um but at some point I think if we're hit by a big shock it's quite possible we'll have indeed likely we'll have a big burst of inflation no matter what the Federal Reserve says and maybe other measures so-called uh financial repression where the financial sector is forced to absorb a big amount of government debt at low interest rates due to all kinds of regul regulations which favor government debt. And last but not least, there's certainly the possibility of at least selective default on some kind of debts. People forget back almost 100 years ago in the early 1930s, the US absolutely defaulted on its debt. When we abregated the gold standard, we promised to pay gold at $20 an ounce. We said eventually, just kidding, $35 an ounce. So that makes the dollar worth less if you need more of them to buy an ounce of gold. And and by the way, I want to say, of course, economists like me see that as a default just as much as when Argentina went off the peso at the beginning of the century, peso dollar fix. But the Supreme Court ruled that it was a default. and uh Donald Trump's C uh uh team has talked about this idea. Uh so we'll see. But at the end of the day, it's the American voter. Neither party really wants to do anything about the deficit. And I think until we have some kind of significant crisis, they won't. The DXY is currently at just over a 100 uh professor and it's been rising ever since the uh Iran war broke out in late February. If we are headed for some sort of soft default one way or another, certainly the dollar market or the international capital markets don't seem to think that, why isn't the dollar reflecting this reality right now? >> Well, what are you talking about? I mean, interest rates have been going up because of the war and real interest rates have been going up. Uh, expected inflation's going up. I know it's been something of a flight from all bonds because Europe's in worse shape. Japan's maybe in worse shape. So, but that doesn't mean that everyone isn't going to have problems. There are you're you're talking about the dollar exchange rate and in the 1970s, everybody had problems. And I think if we have this shock continue, and I don't quite know how we're digging our way out of it, uh, we're going to have a supply shock the likes of which we haven't seen since the 1970s. So, it certainly could be very painful and express itself in one way or another that's not pleasant. >> Just on that note, you said we're going to have a supply shock not seen since the 1970s. Are you talking about specifically oil and energy, professor? oil and energy combined with, you know, helium, fertilizers, war, all of these things push interest rates up. Oh many people uh particularly political economists, people who write opeds the last 20 or 30 years uh many people who are uh chief economists at major banks have become conditioned to that everything's what we economists call a demand shock. And without getting into the nitty-gritty, the fundamental is it's something that pushes interest rates down. Well, if it's pushing interest rates down, Federal Reserve can cut short-term interest rates. It's pushing long-term interest rates down. We can run a bigger debt if interest rates are down because the carrying cost is less. A supply shock has the uniquely unpleasant feature that it's pushing interest rates up. It's pushing expected rates, inflation rates up. So this standard knee-jerk Keynesian responses sometimes the best you can do but have these painful tradeoffs and we haven't really seen anything come on fast like this for a while now. It is early days in the Iran war. I don't see an offramp at the moment. I think this could be a big problem and getting worse for a while. But of course, if it went away overnight, I don't know how, we might not even be talking about it in two years, but it, as I say, uh, coming on top of Ukraine, coming on top of the tariff war, and now Iran, and I don't know what's next. You you have a regular news report, and you must have something wild to report almost every day. uh we live in this very volatile world, but I think specifically we're looking at a different class of shock that's more difficult to use Keynesian stimulus to mitigate. Before we continue, I want to bring to your attention today's sponsor, Monetary Metals. Now, most people think of gold as something you buy in store. Monetary Metals takes a different approach. Instead of just holding gold and waiting for price appreciation, you can earn a yield on it paid in physical ounces. Through their leasing platform, investors can earn up to 4% annually with yield paid monthly in ounces. That means your return is measured in gold, not just in currency terms. Rather than sitting idle while you pay storage costs, your gold generates income. The metal remains your asset and can be redeemed at any time. Thousands of investors are already earning monthly interest in gold through monetary medals. Visit monetary-medals.com/lin link in the description down below or scan the QR code here to learn more. To echo a question asked to Jerome Powell at the last FOMC press conference, a reporter asked him, "Has the world fundamentally changed?" I'm paraphrasing slightly in the sense that there are now more and more frequent supply shocks of a global order. How would you answer that question, professor? >> Well, I mean, we're definitely in more frequent big things happening having the pandemic happen, you know, in mere uh 10 years or 12 years after the global financial crisis, big big shocks. That's a little bit unusual. Uh but I think we're definitely in a more volatile period. This this is yet another one. uh this this war, the tariff war, and the different things we're seeing. They're not all supply shocks, but this one is the closing of the Straits of Hormuz, the big buildup in military spending, the need for a big military uh spending that's pushing interest rates up. Everybody needs to spend money now to buy stuff. So I I I don't know that I'd say we have lots of small supply shocks. Maybe that's always happening, but we we're facing a very ne big negative one. Maybe in the future AI will be a big positive one, but that's got a ways to go. >> One possible ch change could be the reversal or I guess consequence of these supply chain disruptions could be the reversal of globalization. uh Secretary of Commerce Howard Lutnik at the WEF earlier this year said that globalization has failed the rest the West. Have you have you listened to the speech? And if so, do you agree with that quote? >> Well, I would say if he thinks that he's failed uh economics 101, it has been the best thing for the United States. We have benefited hugely. Yes. Maybe we should have uh had a different tax system. Yes, maybe we should have been more careful about national security and certain things like making sure we can ping uh produce drugs on shore. But to sort of uh quote the comedian Dave Chappelle uh you know I want to wear Nike sneak sneakers. I don't want to make them. And there are things you need to have security about. You don't have to make them in the United States. We're never going to be great at shipmaking in the United States, at least until robotics becomes much more advanced. But Japan's good at it. Korea's good at it. We don't have to put tariffs on them. They're our allies. Those are examples of national security. But I think there are other issues like drugs and the derivative chemicals used to make critical drugs. Having them made in China is not such a great idea. And we learned that in the pandemic. >> Well, the trade war has exposed several weak links in the global supply chain. For America, for example, much of the critical minerals we consume and our industries consume come from China. And if China puts export restrictions on certain critical minerals, which they have in the last year, then um America needs solutions fast or a national security concern uh may be at the top of the agenda. What should be done about this risk? >> Well, first to say, President Xi of China is really until Iran the only one to go toe-to-toe with Trump and give him a bloody nose. We'll see what happens in Iran. Uh, and that was very clever. Uh, squeezing, finding this choke point, finding this weakness in the negotiations and the US needs to do something about it. Now this is certainly a problem that can be solved and I I'm not saying you know you don't trade with China. I think trade with China is fantastic but uncertain there's certain balance of gains from trade and national security. But to go back to Howard Lutnik I mean that's just you know ridiculous the comment that we've gotten you know hoodwinkedked by globalization. Uh in fact despite the tariff war the globalization is still running pretty strong. If Lutnik and his uh fellow economic adviserss are successful in reducing globalization that's going to be very painful for the United States. First of all it's going to make interest rates go up. Part of the flip side of running our deficits on trade is that we're getting cheap money to pay for everything, mortgages, uh, housing loans, government debt. But uh you know it's it's uh also the case that the dollar the benefit of the to the dollar of having this big globalized economy where everyone is connected that that's been tremendous in lowering our interest rates and helping our financial system. I I think it's very puzzling to me that the administration has the blinders on. They think you can chop up trade, put on these big tariffs, and it won't bleed over into asset trade. Eventually, it will. >> Leading into your book now, we'll talk about the US dollar. Uh, some recent news to get to your attention first, professor. Iran is now charging a toll up to $2 million per ship um as reported by some sources. And importantly, they want to charge this toll in Yang. Previously in the month, they've also commented or perhaps proposed the idea that certain ships can be let through if if uh if they purchase oil in Yang instead of the dollar. What do you make of this particular development? Uh is this the end of the petrol dollar as we see it? >> Well, it's certainly very clever by Iran. It's adding insult to injury that not only do you have to pay us, you have to pay us in uh Chinese currency. uh you know there's been a there's been a gradual shift towards more invoicing of trade in Chinese currency and China's trade was 0% in R&B the yuan uh in 2010 and now it's half and they have been pushing to have more oil uh invoiced in Chinese currency and I think this was all coming anyway uh I think I actually think the dollar peaked about 10 years ago by a lot of statistics, but I I it depends on how the Middle East comes out. But if it comes out that Iran has given us a bloody nose, that this is viewed as a defeat for the United States in the same way Afghanistan was to some extent Iraq was, Vietnam, but maybe worse. Uh that's not good for the dollar franchise. In your book, Our Dollar Your Problem, you've discussed why the dollar has been in in decline for quite some time. I believe, and correct me if I'm wrong, professor, but you and your colleagues have discovered through your research that the dollar's uh preeminence peaked in 2015. Um, and that in as little as 10 years, which is exactly now, uh, the world financial system will be split between the US, China, and Europe. Can you tell us a little bit more about this development? Well, that that's a direction that we're headed in. And there are two big driving factors. One are things from the outside, which is basically that we use our dollar privilege to put sanctions on everybody. We have them on Russia, but on 20 countries and some Chinese entities. And China knows that when they try to push harder on Taiwan, eventually we're going to pull the sanctions card and they're preparing for it. It also gives us incredible information. We live in a world where data has tremendous value and the fact that so much goes for the dollar gives us information. I want to add that if you read my book, you see that the dollar has gone through es and flows. Europe used to be the center of the dollar by any measure. That was the dollar center. Now it's gone. They're on the euro. Today Asia is half the dollar block. And I think that's somewhat tenuous. So that's been going on. There's a lot of homework China and Europe need to do to prepare to deepen their financial markets, to deepen their ability to do international trade. But with modern technologies, it's happening. But the other side of it, like the fall of Rome, is the problems on the inside that are bigger. You and I started out this conversation talking about debt. At the end of the day, you got to trust the dollar. And by many measures that finance economists look at, the dollar no longer trades as the safest currency when you compare it to the yen, the euro, the German mark. uh not German mark the German debt in particular and second and also very very importantly and going back to started out the program with Jerome Powell uh I'm sure if you could read between the lines of many things that he says he's very worried about central bank independence uh the Trump administration has very openly said they want to take it away they want to bring it back uh under the president and by the way uh progressives who think this is a Trump thing. Nobody else would do that. That's just not true. The left in the United States, which would have come into power had Trump's opponent won, they hate central bank independents. They don't even like banks. They wanted also uh many of their leading thinkers to bring the Fed into the Treasury. And the problem is that that can work for a while, but when the heat is on, when there really pressures, like when you have a war that's not going well, it's very tempting to inflate that. That's actually part of what happened in the 1970s. So, there are these problems within, problems on the outside, and people who just say, "Oh, the dollar's king. Everybody loves the dollar. the dollar forever. They they haven't even looked at the post-war history where there many ups and downs. And I think we're in a period for a long sustained down. Partly the R&B, but also the Europeans aren't happy anymore. Just say the word Greenland. And you know, they get, you know, uh quite hyperventilating about that. and they're looking to accelerate plans they had anyway, but now they're doing it faster to encourage more use of the euro outside Europe. >> There's been a lot of talk since the Russian invasion of Ukraine in 2022 that countries and especially countries aligned with Russia have been seeking ways to deollarize after the world saw what the West did with sanctions against Russia. Have Russia and their allies found a way to ddollarize successfully now in 2026 and is there an alternative to the dollar that these countries can go to? >> Well, sort of they have dramatically dd dollararized. So that's one of the things happening with sanctions going in there. The Chinese have provided them a lot of help that there are ways to do transactions through the Chinese currency. But this brings us to crypto has also been important. Uh there's no question the use first of Bitcoin, now of stable coins, but particularly the ones that aren't traced so easily. Uh that's become a very big thing. If you look at trade between Russia and China, India, China, Iran and anyone, a lot of this takes place with either Chinese currency, cryptocurrency. Cryptocurrency may sound exotic to most people, but in the global underground economy, which mostly is tax evasion, but also illegal arm trade, uh, drug trafficking, human trafficking, uh, crypto is actually quite a competitor for the dollar, and that's one of the margins so that the dollar is losing market share. So, we talked about the euro and the R&B. There's also crypto. Do you believe that the world is heading into a multi-polar block? And if so, what will happen to international trade and uh crossber payments? Which currencies will remain dominant well into the 21st century? >> Well, so what I what I argue in my book is the dollar is going to remain on top, but it's going to be king of a smaller hill. China is going to have much more trade within Asia. Let's just not just Asia, Latin America, Africa. Let's understand China's totally equal as a trading partner to the United States. People care about what China wants. Uh so there's going to be a lot more there. Still not as much as the dollar, but it's going to become much bigger than it is now, which is small. And I think the euro is going to become bigger because the more the United States is aggressive and erratic, the more people will seek diversification from who wins the presidential election in 3 years. Are we going to get a president Manni? He's the New York mayor. He can't be president. He was uh born in another country, but we could easily get someone like him. and that person could make Trump seem tame in terms of what they're prepared to do to foreign investors. So, I think people are diversifying themselves. Uh, you know, short-term they've gone into things like gold, although the war in Iran has been bad for gold in part because the Middle East is a very important source of demand. >> Do you think we're headed for another gold standard? >> No, I don't think we're headed for a gold standard. I know there are some people like the Wall Street Journal editorial board that are constantly pushing the idea it was just so beautiful under the gold standard. And that's about as ignorant as Howard Lutnik's comment that globalization's been bad. The gold standard blew up for good reasons. If we go back to it, it's going to blow up again. We're just not prepared to stick to it and that's that. That said, I think gold has become an important element of reserves for central banks. That's I think even after the recent volatility, a big driving demand for gold that we're going to see because the euro is coming, the R&B is coming, gold's here. So there are people who say Bitcoin is the new gold. Uh I would say gold is the new gold. People have pointed out maybe correctly or incorrectly you can comment on this that during the bread and woods era America did not see periods of very high inflation and perhaps some sort of anchoring to a hard asset is what it is needed today to prevent us from entering periods of high or even hyperinflation in the US. Do you see that as a cause or just a correlation that during those during those years inflation was not high under a gold standard? I think you can look over a much longer period than that and the gold standard you know back into I say 1870 worked pretty well and even if you go before that uh when we had you know by metallic meaning silver and gold and other kinds of things we did not have the kind of inflation that happened since the printing press but I think central bank independence works pretty well it's under duress we'll see but having independence in central banks has worked in countries around the world. It's worked in the United States until now. But we'll see. I mean, if we end up with having a giant inflation, there's certain technical advances in uh the different kinds of uh uh what shall I say? Tokenization of bonds that could lead us back to a commodity standard. I don't know. But I'd say looking a mere 50 years ahead, I don't think it's happening. And if a country did it, I don't think it would be a good idea. Yes, you can keep inflation low until it blows up, but when it blows up, it makes up for all the good times. >> What do you think should be the direction of the US dollar versus other currencies? Should it be a I guess policy of any administration to weaken the dollar? Would that actually strengthen the US's manufacturing base? Professor, >> so the value of the dollar, in other words, right now, you know, as we speak, there's a $1.15 to the euro, for example, that's the trade value of the dollar. And the dollar is actually very high against the Asian currencies. That's a separate question from whether the dollar's the lingua frana that everything passes through the United States. Everything goes through the dollar. So let me talk about the question of the where the dollar is going. The value of the dollar I think it's very high still. I think it's due to come down another 15 or 20% particularly against the Asian currencies. very hard to predict exchange rates. But an a consistent exception that people who've loo looked at this over different eras, different data sets, etc., is that when a currency is way out of line in what we call its purchasing power, you know, how much does a McDonald's hamburger cost, you know, how much do standard goods cost? when it's way out of line, it tends to have some reversion to mean. And I don't want to get into the specifics. It's slow. It's not a galloping, you know, collapse, but right now the Japanese yen and the Korean one are at ridiculously low values relative to the dollar. And I think the chances that there's significant reversion in those exchange rates is high. The euro less so. I don't see it jumping out at me. But there are other currencies like uh you know that also uh seem uh very weak. Uh the Brazilian realale would be another one. There many the dollar on average is very high. There's some important currencies where it's not. And okay, does this mean the dollar is going to go down another 7 to 10% in 2026? That would be on the high side, but I would say 5% would be my guess of what we see at the end of the year. Lot of volatility, hard to predict exchange rates. I'm giving a lot of qualifications, but I definitely have some conviction that it's likely to go down. >> Well, would the American economy benefit from a weaker or stronger dollar in the future? >> Uh, I think the American economy would benefit a little, but I don't think it's the reason that our manufacturing is weak. uh excuse me that our manufacturing employment is weak. That's mostly because of robotics. Uh agriculture used to have 80% of the US labor force. Now it's 1%. But the United States is an agricultural superpower. So it's not, you know, a lot of its mechanization. And again, uh, we could shut ourselves off to trade, but, uh, I tell you, you know, I don't think Americans would be very happy with the quality of goods that they get. Frankly, even the trade restrictions and tariffs that Trump put on 6 years ago with his tariffs on things like washing machines, dishwashers have led to much worse average quality. It's not just prices. So, I don't think Americans will be very happy with it, but who knows? It could happen. >> On on that note, the weaker manufacturing employment base. Um, Senator Marco Rubio has argued that decades of policy have de-industrialized the US. Uh, I think I believe were his words. Uh, he's referred to uh this as a collapse of American manufacturing and America has lost its ability to uh industrialize at the same capacity as its postw World War II era. Do you agree with this? >> Well, it's a slightly better comment than Howard Ludnik's because it's true. But to blame it on the exchange rate or de-industrializations missing all the things that grew in the American economy, the industrial base is smaller because tech grew, biotech, insurance, you know, medicine, all kinds of things. The United States rules that that everybody else is very jealous. And again, if something matters for national security, you want to be able to homeshore some of it or have reliable friends that produce it for you. But if we had an economy consisting, you know, of 30 or 40% manufacturing like we once did, we might well have a lot less of everything else. we'd have a lot lower income. We would look more like Germany who's not as rich as the United States. That's a very good example of an economy which has preserved its manufacturing as best you could. But right now, Germany is wishing, boy, we wish we were better in tech. So, you know, that's the whole law of comparative advantage. Comparative advantage, sorry to use the technical term, means you try to produce the things you're best at and you import the things you're not as good at. And you want to be good at the high value things, the things where there's really big profits. Manufacturing's not a big profit area anymore. It's very competitive. The stuff the US is good in are very high profit margin things. So, I hope if Senator Rubio runs for president in uh 2028 and becomes president that he rethinks the idea that if we could just build up in manufacturing, everything will be hunky dory. Uh it's not so simple. Again, you care about national security. We may need to build a lot of drones, but you want to also think about your allies. What are you good at? What are they good at? uh you want to have some trade even if you're not wanting to get everything from China. >> Let's uh close off the conversation by looking ahead at u international uh security here. Do you think that uh the US is in a position to remain the political and economic hedgeman of the world in the next coming decades? talked about how the global financial system will be more evenly split in your book, but what about from the political and economic angle and perhaps even militarily? >> Well, let's start with saying I'm an American and I hope so. I'm not rooting against it. Uh, China is very formidable. I don't know that it's going to pass the US, but it's going to become stronger and stronger. I think the US is going to have to accommodate the growing strength of China even with all its problems and there are many again the things I write about a lot in my book the real estate problems they're growing faster than the United States they're getting bigger and bigger and bigger and I think it's something we'll have to accommodate uh the thing that really takes you down if you look at history is losing wars the bigger the war the more it matters. You can afford to lose some small wars, but losing wars is not good for the franchise. And I was a professional chess player in my youth. And I'm still an international grandmaster for what it's worth. And we have a saying in chess that you look at a complicated position, you don't know what's going to happen. All results are possible. That feels to me like what's going on in this big geopolitical game in the Middle East. I'm an American. I hope uh President Trump has three aces up his sleeve, but if he doesn't, it's distinctly possible this looks like a big win for Iran. You mentioned $2 million a ship going through the straits of Hormuz exercising more global power. that kind of defeat and one or two more of those that can take you down a couple notches and I hope it doesn't happen. >> Well, I believe you finished writing your book our dollar your problem in late 2024 and it was published in 2025. If you had to, let's say, rewrite the book or add chapters today, what would you change given everything that's happened from the trade war to what's currently happening in the Middle East? Well, I had that opportunity recently because I have a paperback version coming out where I could change whatever I wanted and there's very little I wanted to change. I added a chapter where what do I worry about? I worry about corruption in the US more than I would have worried. I worried about things undermining our institutions. I was pretty worried about the Democrats winning. And so people said, "How could you know that we'd have so many problems with our debt? How could you know we'd have a problem with central bank independence? My book talks about that a lot. How could you know there'd be so much volatility?" I guess I didn't have a very optimistic view of what a Kla Harris administration would look like. Uh, so you know, I will just say in closing, I got incredibly lucky with the book because my publisher, it's an academic press. They don't care about money as much. I I followed them because my book, this time is different, finished fourth, ended up fourth on Amazon of all books for a while. And I wasn't going to complain about trying to have it happen again with the same editor. But they held it till April and it came out in liberation day and everybody said, "How would you how did you know? How did you make the timing so perfect?" I was very lucky that my publisher held on to it. Uh but uh there's not that much that I would change. I I I honestly uh talk about it a lot. Uh there were really longer term concerns. Many things that are attributed to Trump are really the United States. He is acting out. He's more extreme. But there are underlying issues with what were going on on the outside and what's going on on the inside. >> Well, what could have been different if Kala Harris won the election? >> Well, uh, central bank independence would be undermined in other ways. They'd continue, uh, pressuring it to deal with inequality, with the environment. with social justice, things which weaken and dilute its mandate, which leave you more vulnerable to having the kind of giant inflation that happened under Biden. And there is talk among the progressives among about really just eliminating central bank independents bring into the central bank. And if you don't think that they would have run big deficits, you've got to be kidding. And I'd even say, you know, people are saying shocking that Trump is trying to control everything by himself. I I don't want to say I'm happy about it, but I was very concerned about a big Democratic victory where they were going to eliminate the filibuster. Again, apologize for the technical term for some of your uh listeners. The filibuster gives the minority power in the Senate a lot of power to put sand in the wheels of what the governing party wants to do. And had they eliminated that, okay, you'd have had five people in charge of the US economy instead of one, but it would have looked pretty extreme also. So, I I was very worried about getting either outcome. I would have rather seen more of a split decision uh because I'm not really happy with where either party is. We didn't see that. And I think I just want to say in 2029 it could easily go 180° turn and there'll also be a lot of volatility. Some people may say that's a restoration of democracy, but I think it actually could be going from one extreme to another. >> Final question before I let you go. the um we talked a lot about foreign policy. What domestic economic issues do you think are most pressing to be fixed right now? And if you could provide I guess recommendations to the administration, the current administration, what would these recommendations be? >> Well, 100% uh deregulation has gone too far in some areas. So among in the financial sector there were many adjustments that needed to be made. There was an overshoot after the global financial crisis. I'm sympathetic to many of the complaints the Trump administration has. But you know they're clearing things out to a degree that I think risks having another crisis, financial crisis in 3 or 4 years. By the way, that's not something I've been going around saying. That's something that's really come into my focus the last few weeks. There have been a lot of changes. Second, I would say AI regulation. Uh again, you know, you want to beat China supposedly, but I don't think we really are going to beat China. I think China will steal anything the US gets. And I think if we simply enforced copyright law, enforced intellectual property rights, cared a little bit more about the environmental costs of AI, that would help slow it down and give our society more time to adjust. I I write about these things actually in the book, Anticipating It, and I fear some of my worst concerns have come to pass. >> Okay, we'll put the link to your book down below in the description. So, please do check out our dollar your problem. Thank you very much, professor. By the way, you were a chess prodigy growing up. I think um I was reading your bio. You had uh you had um considered doing chess or playing chess uh professionally and you had actually dropped out of high school to do that. What made you pivot back to academia and study economics ultimately? What was that, >> you know, what was that moment for you? Um, you know, I I don't I when I was sort of 17 or 18, I was living on my own uh in Spain, England, but a lot in the former Yugoslavia uh in Sievo. And I, you know, felt that I was getting very good, but I w I saw that I couldn't be world champion. I mean, I would describe the level I was reaching as someone who gets into the quarterfinals at Wimbledon but doesn't win Wimbledon. Now, nowadays, I think that would be pretty good to get into the quarterfinals at Wimbledon, but you know, being a kid and naive, I wanted to do better. I thought I could do something more important with my life. And I think people get a lot of joy out of chess. I don't want to overstate that, but that was important to me. And also uh I I I say struggled with my social life as a nerdy teenager living on my own. Well, I'm still nerdy. That didn't go away. Uh so anyway, um you know, I made a decision, but it was a rare decision. I'm more famous in chess today than I was when I was representing the US in the World Championships because it's so rare to give it up. >> Okay. Well, we uh we appreciate your insights. Besides your book, where else can we find your work, professor? >> Well, I have uh a column in uh Project Syndicate that's monthly that appears all over the world. I uh frequently write in other, you know, the Financial Times and the Economist, the Wall Street Journal and places like that. Uh but I have a web page at Harvard where you can see my academic work. I don't know how much people will appreciate that. it's academic, but for example, I recently completed a paper for Brookings where they have a lot of um sort of short versions of it created about why China's real estate crisis is may end up looking more like Japan's than you could possibly imagine. >> Okay, we can hopefully follow up on that next time. Thank you so much, Professor Rogoff. It's been a pleasure speaking with you and I look forward to having you back on again. Take care for now. >> Well, thank you, David. Thanks for having me. >> Thank you for watching. Don't forget to like, subscribe, and follow Professor Rooff's works down below.
Biggest Supply Shock Since The 1970s? Harvard Economist’s ‘Painful’ Reveal | Kenneth Rogoff
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Transcript
I hope uh President Trump has three aces up his sleeve, but if he doesn't, it's distinctly possible this looks like a big win for Iran. We don't have to put tariffs on them. They're our allies. People who just say, "Oh, the dollar's king. Everybody loves the dollar. The dollar forever." They they haven't even looked at the post-war history. Our next guest is Kenneth Rogoff, professor of economics at Harvard University, former chief economist at the International Monetary Fund, IMF, and the author of his latest book, Our Dollar, Your Problem: An Insiders View of Seven Turbulent Decades of Global Finance and The Road Ahead. We'll be examining the road ahead for the US dollar. Will the dollar remain the global reserve currency? Will the US retain its global hedgemon status? And what is next for the world order? What is next for inflation and Fed monetary policy? All this will be examined with Professor Brogoff today. Welcome to the show, Professor. Good to have you. >> Thank you for having me, David. >> Among the many problems that our economy faces today is the rising debt issue, which Jerome Pal, Federal Reserve Chair, perfectly summarized in this video clip. Take a listen. >> What's clear is that our uh debt is growing much faster. The federal government debt is growing substantially faster than our economy. And that ratio is going up. And you know, in the long run, that's kind of the definition of unsustainable. The level of the debt is not unsustainable, but the path is not sustainable. And so, it's it's really important that we get back to we don't have to pay the debt down. We just need to to to have, you know, primary balance and and begin to have the economy actually growing better, growing more quickly than the economy. It will it will not end well if we don't do something fairly soon. This is not the Fed's job, of course, and I pretty much limit myself to those high level points which which essentially everyone ignores. >> It will not end well is his warning. What does that mean to you? >> Well, the uh eventually the US will run into trouble in the sense of interest rates will gradually rise. Maybe because the US debt is rising. Maybe because we're having war all over the world and it's rising. And we're when you're the world's biggest debtor by far and interest rates go up, it's painful. There are a lot of things we can do, but it's not clear we're prepared to do any of them. So, you know, certainly we can, as uh Chair Powell says, reduce our primary balance, which really would mean a much smaller deficit than we've been running, and keep our fingers crossed that interest rates don't go up too much. Um but at some point I think if we're hit by a big shock it's quite possible we'll have indeed likely we'll have a big burst of inflation no matter what the Federal Reserve says and maybe other measures so-called uh financial repression where the financial sector is forced to absorb a big amount of government debt at low interest rates due to all kinds of regul regulations which favor government debt. And last but not least, there's certainly the possibility of at least selective default on some kind of debts. People forget back almost 100 years ago in the early 1930s, the US absolutely defaulted on its debt. When we abregated the gold standard, we promised to pay gold at $20 an ounce. We said eventually, just kidding, $35 an ounce. So that makes the dollar worth less if you need more of them to buy an ounce of gold. And and by the way, I want to say, of course, economists like me see that as a default just as much as when Argentina went off the peso at the beginning of the century, peso dollar fix. But the Supreme Court ruled that it was a default. and uh Donald Trump's C uh uh team has talked about this idea. Uh so we'll see. But at the end of the day, it's the American voter. Neither party really wants to do anything about the deficit. And I think until we have some kind of significant crisis, they won't. The DXY is currently at just over a 100 uh professor and it's been rising ever since the uh Iran war broke out in late February. If we are headed for some sort of soft default one way or another, certainly the dollar market or the international capital markets don't seem to think that, why isn't the dollar reflecting this reality right now? >> Well, what are you talking about? I mean, interest rates have been going up because of the war and real interest rates have been going up. Uh, expected inflation's going up. I know it's been something of a flight from all bonds because Europe's in worse shape. Japan's maybe in worse shape. So, but that doesn't mean that everyone isn't going to have problems. There are you're you're talking about the dollar exchange rate and in the 1970s, everybody had problems. And I think if we have this shock continue, and I don't quite know how we're digging our way out of it, uh, we're going to have a supply shock the likes of which we haven't seen since the 1970s. So, it certainly could be very painful and express itself in one way or another that's not pleasant. >> Just on that note, you said we're going to have a supply shock not seen since the 1970s. Are you talking about specifically oil and energy, professor? oil and energy combined with, you know, helium, fertilizers, war, all of these things push interest rates up. Oh many people uh particularly political economists, people who write opeds the last 20 or 30 years uh many people who are uh chief economists at major banks have become conditioned to that everything's what we economists call a demand shock. And without getting into the nitty-gritty, the fundamental is it's something that pushes interest rates down. Well, if it's pushing interest rates down, Federal Reserve can cut short-term interest rates. It's pushing long-term interest rates down. We can run a bigger debt if interest rates are down because the carrying cost is less. A supply shock has the uniquely unpleasant feature that it's pushing interest rates up. It's pushing expected rates, inflation rates up. So this standard knee-jerk Keynesian responses sometimes the best you can do but have these painful tradeoffs and we haven't really seen anything come on fast like this for a while now. It is early days in the Iran war. I don't see an offramp at the moment. I think this could be a big problem and getting worse for a while. But of course, if it went away overnight, I don't know how, we might not even be talking about it in two years, but it, as I say, uh, coming on top of Ukraine, coming on top of the tariff war, and now Iran, and I don't know what's next. You you have a regular news report, and you must have something wild to report almost every day. uh we live in this very volatile world, but I think specifically we're looking at a different class of shock that's more difficult to use Keynesian stimulus to mitigate. Before we continue, I want to bring to your attention today's sponsor, Monetary Metals. Now, most people think of gold as something you buy in store. Monetary Metals takes a different approach. Instead of just holding gold and waiting for price appreciation, you can earn a yield on it paid in physical ounces. Through their leasing platform, investors can earn up to 4% annually with yield paid monthly in ounces. That means your return is measured in gold, not just in currency terms. Rather than sitting idle while you pay storage costs, your gold generates income. The metal remains your asset and can be redeemed at any time. Thousands of investors are already earning monthly interest in gold through monetary medals. Visit monetary-medals.com/lin link in the description down below or scan the QR code here to learn more. To echo a question asked to Jerome Powell at the last FOMC press conference, a reporter asked him, "Has the world fundamentally changed?" I'm paraphrasing slightly in the sense that there are now more and more frequent supply shocks of a global order. How would you answer that question, professor? >> Well, I mean, we're definitely in more frequent big things happening having the pandemic happen, you know, in mere uh 10 years or 12 years after the global financial crisis, big big shocks. That's a little bit unusual. Uh but I think we're definitely in a more volatile period. This this is yet another one. uh this this war, the tariff war, and the different things we're seeing. They're not all supply shocks, but this one is the closing of the Straits of Hormuz, the big buildup in military spending, the need for a big military uh spending that's pushing interest rates up. Everybody needs to spend money now to buy stuff. So I I I don't know that I'd say we have lots of small supply shocks. Maybe that's always happening, but we we're facing a very ne big negative one. Maybe in the future AI will be a big positive one, but that's got a ways to go. >> One possible ch change could be the reversal or I guess consequence of these supply chain disruptions could be the reversal of globalization. uh Secretary of Commerce Howard Lutnik at the WEF earlier this year said that globalization has failed the rest the West. Have you have you listened to the speech? And if so, do you agree with that quote? >> Well, I would say if he thinks that he's failed uh economics 101, it has been the best thing for the United States. We have benefited hugely. Yes. Maybe we should have uh had a different tax system. Yes, maybe we should have been more careful about national security and certain things like making sure we can ping uh produce drugs on shore. But to sort of uh quote the comedian Dave Chappelle uh you know I want to wear Nike sneak sneakers. I don't want to make them. And there are things you need to have security about. You don't have to make them in the United States. We're never going to be great at shipmaking in the United States, at least until robotics becomes much more advanced. But Japan's good at it. Korea's good at it. We don't have to put tariffs on them. They're our allies. Those are examples of national security. But I think there are other issues like drugs and the derivative chemicals used to make critical drugs. Having them made in China is not such a great idea. And we learned that in the pandemic. >> Well, the trade war has exposed several weak links in the global supply chain. For America, for example, much of the critical minerals we consume and our industries consume come from China. And if China puts export restrictions on certain critical minerals, which they have in the last year, then um America needs solutions fast or a national security concern uh may be at the top of the agenda. What should be done about this risk? >> Well, first to say, President Xi of China is really until Iran the only one to go toe-to-toe with Trump and give him a bloody nose. We'll see what happens in Iran. Uh, and that was very clever. Uh, squeezing, finding this choke point, finding this weakness in the negotiations and the US needs to do something about it. Now this is certainly a problem that can be solved and I I'm not saying you know you don't trade with China. I think trade with China is fantastic but uncertain there's certain balance of gains from trade and national security. But to go back to Howard Lutnik I mean that's just you know ridiculous the comment that we've gotten you know hoodwinkedked by globalization. Uh in fact despite the tariff war the globalization is still running pretty strong. If Lutnik and his uh fellow economic adviserss are successful in reducing globalization that's going to be very painful for the United States. First of all it's going to make interest rates go up. Part of the flip side of running our deficits on trade is that we're getting cheap money to pay for everything, mortgages, uh, housing loans, government debt. But uh you know it's it's uh also the case that the dollar the benefit of the to the dollar of having this big globalized economy where everyone is connected that that's been tremendous in lowering our interest rates and helping our financial system. I I think it's very puzzling to me that the administration has the blinders on. They think you can chop up trade, put on these big tariffs, and it won't bleed over into asset trade. Eventually, it will. >> Leading into your book now, we'll talk about the US dollar. Uh, some recent news to get to your attention first, professor. Iran is now charging a toll up to $2 million per ship um as reported by some sources. And importantly, they want to charge this toll in Yang. Previously in the month, they've also commented or perhaps proposed the idea that certain ships can be let through if if uh if they purchase oil in Yang instead of the dollar. What do you make of this particular development? Uh is this the end of the petrol dollar as we see it? >> Well, it's certainly very clever by Iran. It's adding insult to injury that not only do you have to pay us, you have to pay us in uh Chinese currency. uh you know there's been a there's been a gradual shift towards more invoicing of trade in Chinese currency and China's trade was 0% in R&B the yuan uh in 2010 and now it's half and they have been pushing to have more oil uh invoiced in Chinese currency and I think this was all coming anyway uh I think I actually think the dollar peaked about 10 years ago by a lot of statistics, but I I it depends on how the Middle East comes out. But if it comes out that Iran has given us a bloody nose, that this is viewed as a defeat for the United States in the same way Afghanistan was to some extent Iraq was, Vietnam, but maybe worse. Uh that's not good for the dollar franchise. In your book, Our Dollar Your Problem, you've discussed why the dollar has been in in decline for quite some time. I believe, and correct me if I'm wrong, professor, but you and your colleagues have discovered through your research that the dollar's uh preeminence peaked in 2015. Um, and that in as little as 10 years, which is exactly now, uh, the world financial system will be split between the US, China, and Europe. Can you tell us a little bit more about this development? Well, that that's a direction that we're headed in. And there are two big driving factors. One are things from the outside, which is basically that we use our dollar privilege to put sanctions on everybody. We have them on Russia, but on 20 countries and some Chinese entities. And China knows that when they try to push harder on Taiwan, eventually we're going to pull the sanctions card and they're preparing for it. It also gives us incredible information. We live in a world where data has tremendous value and the fact that so much goes for the dollar gives us information. I want to add that if you read my book, you see that the dollar has gone through es and flows. Europe used to be the center of the dollar by any measure. That was the dollar center. Now it's gone. They're on the euro. Today Asia is half the dollar block. And I think that's somewhat tenuous. So that's been going on. There's a lot of homework China and Europe need to do to prepare to deepen their financial markets, to deepen their ability to do international trade. But with modern technologies, it's happening. But the other side of it, like the fall of Rome, is the problems on the inside that are bigger. You and I started out this conversation talking about debt. At the end of the day, you got to trust the dollar. And by many measures that finance economists look at, the dollar no longer trades as the safest currency when you compare it to the yen, the euro, the German mark. uh not German mark the German debt in particular and second and also very very importantly and going back to started out the program with Jerome Powell uh I'm sure if you could read between the lines of many things that he says he's very worried about central bank independence uh the Trump administration has very openly said they want to take it away they want to bring it back uh under the president and by the way uh progressives who think this is a Trump thing. Nobody else would do that. That's just not true. The left in the United States, which would have come into power had Trump's opponent won, they hate central bank independents. They don't even like banks. They wanted also uh many of their leading thinkers to bring the Fed into the Treasury. And the problem is that that can work for a while, but when the heat is on, when there really pressures, like when you have a war that's not going well, it's very tempting to inflate that. That's actually part of what happened in the 1970s. So, there are these problems within, problems on the outside, and people who just say, "Oh, the dollar's king. Everybody loves the dollar. the dollar forever. They they haven't even looked at the post-war history where there many ups and downs. And I think we're in a period for a long sustained down. Partly the R&B, but also the Europeans aren't happy anymore. Just say the word Greenland. And you know, they get, you know, uh quite hyperventilating about that. and they're looking to accelerate plans they had anyway, but now they're doing it faster to encourage more use of the euro outside Europe. >> There's been a lot of talk since the Russian invasion of Ukraine in 2022 that countries and especially countries aligned with Russia have been seeking ways to deollarize after the world saw what the West did with sanctions against Russia. Have Russia and their allies found a way to ddollarize successfully now in 2026 and is there an alternative to the dollar that these countries can go to? >> Well, sort of they have dramatically dd dollararized. So that's one of the things happening with sanctions going in there. The Chinese have provided them a lot of help that there are ways to do transactions through the Chinese currency. But this brings us to crypto has also been important. Uh there's no question the use first of Bitcoin, now of stable coins, but particularly the ones that aren't traced so easily. Uh that's become a very big thing. If you look at trade between Russia and China, India, China, Iran and anyone, a lot of this takes place with either Chinese currency, cryptocurrency. Cryptocurrency may sound exotic to most people, but in the global underground economy, which mostly is tax evasion, but also illegal arm trade, uh, drug trafficking, human trafficking, uh, crypto is actually quite a competitor for the dollar, and that's one of the margins so that the dollar is losing market share. So, we talked about the euro and the R&B. There's also crypto. Do you believe that the world is heading into a multi-polar block? And if so, what will happen to international trade and uh crossber payments? Which currencies will remain dominant well into the 21st century? >> Well, so what I what I argue in my book is the dollar is going to remain on top, but it's going to be king of a smaller hill. China is going to have much more trade within Asia. Let's just not just Asia, Latin America, Africa. Let's understand China's totally equal as a trading partner to the United States. People care about what China wants. Uh so there's going to be a lot more there. Still not as much as the dollar, but it's going to become much bigger than it is now, which is small. And I think the euro is going to become bigger because the more the United States is aggressive and erratic, the more people will seek diversification from who wins the presidential election in 3 years. Are we going to get a president Manni? He's the New York mayor. He can't be president. He was uh born in another country, but we could easily get someone like him. and that person could make Trump seem tame in terms of what they're prepared to do to foreign investors. So, I think people are diversifying themselves. Uh, you know, short-term they've gone into things like gold, although the war in Iran has been bad for gold in part because the Middle East is a very important source of demand. >> Do you think we're headed for another gold standard? >> No, I don't think we're headed for a gold standard. I know there are some people like the Wall Street Journal editorial board that are constantly pushing the idea it was just so beautiful under the gold standard. And that's about as ignorant as Howard Lutnik's comment that globalization's been bad. The gold standard blew up for good reasons. If we go back to it, it's going to blow up again. We're just not prepared to stick to it and that's that. That said, I think gold has become an important element of reserves for central banks. That's I think even after the recent volatility, a big driving demand for gold that we're going to see because the euro is coming, the R&B is coming, gold's here. So there are people who say Bitcoin is the new gold. Uh I would say gold is the new gold. People have pointed out maybe correctly or incorrectly you can comment on this that during the bread and woods era America did not see periods of very high inflation and perhaps some sort of anchoring to a hard asset is what it is needed today to prevent us from entering periods of high or even hyperinflation in the US. Do you see that as a cause or just a correlation that during those during those years inflation was not high under a gold standard? I think you can look over a much longer period than that and the gold standard you know back into I say 1870 worked pretty well and even if you go before that uh when we had you know by metallic meaning silver and gold and other kinds of things we did not have the kind of inflation that happened since the printing press but I think central bank independence works pretty well it's under duress we'll see but having independence in central banks has worked in countries around the world. It's worked in the United States until now. But we'll see. I mean, if we end up with having a giant inflation, there's certain technical advances in uh the different kinds of uh uh what shall I say? Tokenization of bonds that could lead us back to a commodity standard. I don't know. But I'd say looking a mere 50 years ahead, I don't think it's happening. And if a country did it, I don't think it would be a good idea. Yes, you can keep inflation low until it blows up, but when it blows up, it makes up for all the good times. >> What do you think should be the direction of the US dollar versus other currencies? Should it be a I guess policy of any administration to weaken the dollar? Would that actually strengthen the US's manufacturing base? Professor, >> so the value of the dollar, in other words, right now, you know, as we speak, there's a $1.15 to the euro, for example, that's the trade value of the dollar. And the dollar is actually very high against the Asian currencies. That's a separate question from whether the dollar's the lingua frana that everything passes through the United States. Everything goes through the dollar. So let me talk about the question of the where the dollar is going. The value of the dollar I think it's very high still. I think it's due to come down another 15 or 20% particularly against the Asian currencies. very hard to predict exchange rates. But an a consistent exception that people who've loo looked at this over different eras, different data sets, etc., is that when a currency is way out of line in what we call its purchasing power, you know, how much does a McDonald's hamburger cost, you know, how much do standard goods cost? when it's way out of line, it tends to have some reversion to mean. And I don't want to get into the specifics. It's slow. It's not a galloping, you know, collapse, but right now the Japanese yen and the Korean one are at ridiculously low values relative to the dollar. And I think the chances that there's significant reversion in those exchange rates is high. The euro less so. I don't see it jumping out at me. But there are other currencies like uh you know that also uh seem uh very weak. Uh the Brazilian realale would be another one. There many the dollar on average is very high. There's some important currencies where it's not. And okay, does this mean the dollar is going to go down another 7 to 10% in 2026? That would be on the high side, but I would say 5% would be my guess of what we see at the end of the year. Lot of volatility, hard to predict exchange rates. I'm giving a lot of qualifications, but I definitely have some conviction that it's likely to go down. >> Well, would the American economy benefit from a weaker or stronger dollar in the future? >> Uh, I think the American economy would benefit a little, but I don't think it's the reason that our manufacturing is weak. uh excuse me that our manufacturing employment is weak. That's mostly because of robotics. Uh agriculture used to have 80% of the US labor force. Now it's 1%. But the United States is an agricultural superpower. So it's not, you know, a lot of its mechanization. And again, uh, we could shut ourselves off to trade, but, uh, I tell you, you know, I don't think Americans would be very happy with the quality of goods that they get. Frankly, even the trade restrictions and tariffs that Trump put on 6 years ago with his tariffs on things like washing machines, dishwashers have led to much worse average quality. It's not just prices. So, I don't think Americans will be very happy with it, but who knows? It could happen. >> On on that note, the weaker manufacturing employment base. Um, Senator Marco Rubio has argued that decades of policy have de-industrialized the US. Uh, I think I believe were his words. Uh, he's referred to uh this as a collapse of American manufacturing and America has lost its ability to uh industrialize at the same capacity as its postw World War II era. Do you agree with this? >> Well, it's a slightly better comment than Howard Ludnik's because it's true. But to blame it on the exchange rate or de-industrializations missing all the things that grew in the American economy, the industrial base is smaller because tech grew, biotech, insurance, you know, medicine, all kinds of things. The United States rules that that everybody else is very jealous. And again, if something matters for national security, you want to be able to homeshore some of it or have reliable friends that produce it for you. But if we had an economy consisting, you know, of 30 or 40% manufacturing like we once did, we might well have a lot less of everything else. we'd have a lot lower income. We would look more like Germany who's not as rich as the United States. That's a very good example of an economy which has preserved its manufacturing as best you could. But right now, Germany is wishing, boy, we wish we were better in tech. So, you know, that's the whole law of comparative advantage. Comparative advantage, sorry to use the technical term, means you try to produce the things you're best at and you import the things you're not as good at. And you want to be good at the high value things, the things where there's really big profits. Manufacturing's not a big profit area anymore. It's very competitive. The stuff the US is good in are very high profit margin things. So, I hope if Senator Rubio runs for president in uh 2028 and becomes president that he rethinks the idea that if we could just build up in manufacturing, everything will be hunky dory. Uh it's not so simple. Again, you care about national security. We may need to build a lot of drones, but you want to also think about your allies. What are you good at? What are they good at? uh you want to have some trade even if you're not wanting to get everything from China. >> Let's uh close off the conversation by looking ahead at u international uh security here. Do you think that uh the US is in a position to remain the political and economic hedgeman of the world in the next coming decades? talked about how the global financial system will be more evenly split in your book, but what about from the political and economic angle and perhaps even militarily? >> Well, let's start with saying I'm an American and I hope so. I'm not rooting against it. Uh, China is very formidable. I don't know that it's going to pass the US, but it's going to become stronger and stronger. I think the US is going to have to accommodate the growing strength of China even with all its problems and there are many again the things I write about a lot in my book the real estate problems they're growing faster than the United States they're getting bigger and bigger and bigger and I think it's something we'll have to accommodate uh the thing that really takes you down if you look at history is losing wars the bigger the war the more it matters. You can afford to lose some small wars, but losing wars is not good for the franchise. And I was a professional chess player in my youth. And I'm still an international grandmaster for what it's worth. And we have a saying in chess that you look at a complicated position, you don't know what's going to happen. All results are possible. That feels to me like what's going on in this big geopolitical game in the Middle East. I'm an American. I hope uh President Trump has three aces up his sleeve, but if he doesn't, it's distinctly possible this looks like a big win for Iran. You mentioned $2 million a ship going through the straits of Hormuz exercising more global power. that kind of defeat and one or two more of those that can take you down a couple notches and I hope it doesn't happen. >> Well, I believe you finished writing your book our dollar your problem in late 2024 and it was published in 2025. If you had to, let's say, rewrite the book or add chapters today, what would you change given everything that's happened from the trade war to what's currently happening in the Middle East? Well, I had that opportunity recently because I have a paperback version coming out where I could change whatever I wanted and there's very little I wanted to change. I added a chapter where what do I worry about? I worry about corruption in the US more than I would have worried. I worried about things undermining our institutions. I was pretty worried about the Democrats winning. And so people said, "How could you know that we'd have so many problems with our debt? How could you know we'd have a problem with central bank independence? My book talks about that a lot. How could you know there'd be so much volatility?" I guess I didn't have a very optimistic view of what a Kla Harris administration would look like. Uh, so you know, I will just say in closing, I got incredibly lucky with the book because my publisher, it's an academic press. They don't care about money as much. I I followed them because my book, this time is different, finished fourth, ended up fourth on Amazon of all books for a while. And I wasn't going to complain about trying to have it happen again with the same editor. But they held it till April and it came out in liberation day and everybody said, "How would you how did you know? How did you make the timing so perfect?" I was very lucky that my publisher held on to it. Uh but uh there's not that much that I would change. I I I honestly uh talk about it a lot. Uh there were really longer term concerns. Many things that are attributed to Trump are really the United States. He is acting out. He's more extreme. But there are underlying issues with what were going on on the outside and what's going on on the inside. >> Well, what could have been different if Kala Harris won the election? >> Well, uh, central bank independence would be undermined in other ways. They'd continue, uh, pressuring it to deal with inequality, with the environment. with social justice, things which weaken and dilute its mandate, which leave you more vulnerable to having the kind of giant inflation that happened under Biden. And there is talk among the progressives among about really just eliminating central bank independents bring into the central bank. And if you don't think that they would have run big deficits, you've got to be kidding. And I'd even say, you know, people are saying shocking that Trump is trying to control everything by himself. I I don't want to say I'm happy about it, but I was very concerned about a big Democratic victory where they were going to eliminate the filibuster. Again, apologize for the technical term for some of your uh listeners. The filibuster gives the minority power in the Senate a lot of power to put sand in the wheels of what the governing party wants to do. And had they eliminated that, okay, you'd have had five people in charge of the US economy instead of one, but it would have looked pretty extreme also. So, I I was very worried about getting either outcome. I would have rather seen more of a split decision uh because I'm not really happy with where either party is. We didn't see that. And I think I just want to say in 2029 it could easily go 180° turn and there'll also be a lot of volatility. Some people may say that's a restoration of democracy, but I think it actually could be going from one extreme to another. >> Final question before I let you go. the um we talked a lot about foreign policy. What domestic economic issues do you think are most pressing to be fixed right now? And if you could provide I guess recommendations to the administration, the current administration, what would these recommendations be? >> Well, 100% uh deregulation has gone too far in some areas. So among in the financial sector there were many adjustments that needed to be made. There was an overshoot after the global financial crisis. I'm sympathetic to many of the complaints the Trump administration has. But you know they're clearing things out to a degree that I think risks having another crisis, financial crisis in 3 or 4 years. By the way, that's not something I've been going around saying. That's something that's really come into my focus the last few weeks. There have been a lot of changes. Second, I would say AI regulation. Uh again, you know, you want to beat China supposedly, but I don't think we really are going to beat China. I think China will steal anything the US gets. And I think if we simply enforced copyright law, enforced intellectual property rights, cared a little bit more about the environmental costs of AI, that would help slow it down and give our society more time to adjust. I I write about these things actually in the book, Anticipating It, and I fear some of my worst concerns have come to pass. >> Okay, we'll put the link to your book down below in the description. So, please do check out our dollar your problem. Thank you very much, professor. By the way, you were a chess prodigy growing up. I think um I was reading your bio. You had uh you had um considered doing chess or playing chess uh professionally and you had actually dropped out of high school to do that. What made you pivot back to academia and study economics ultimately? What was that, >> you know, what was that moment for you? Um, you know, I I don't I when I was sort of 17 or 18, I was living on my own uh in Spain, England, but a lot in the former Yugoslavia uh in Sievo. And I, you know, felt that I was getting very good, but I w I saw that I couldn't be world champion. I mean, I would describe the level I was reaching as someone who gets into the quarterfinals at Wimbledon but doesn't win Wimbledon. Now, nowadays, I think that would be pretty good to get into the quarterfinals at Wimbledon, but you know, being a kid and naive, I wanted to do better. I thought I could do something more important with my life. And I think people get a lot of joy out of chess. I don't want to overstate that, but that was important to me. And also uh I I I say struggled with my social life as a nerdy teenager living on my own. Well, I'm still nerdy. That didn't go away. Uh so anyway, um you know, I made a decision, but it was a rare decision. I'm more famous in chess today than I was when I was representing the US in the World Championships because it's so rare to give it up. >> Okay. Well, we uh we appreciate your insights. Besides your book, where else can we find your work, professor? >> Well, I have uh a column in uh Project Syndicate that's monthly that appears all over the world. I uh frequently write in other, you know, the Financial Times and the Economist, the Wall Street Journal and places like that. Uh but I have a web page at Harvard where you can see my academic work. I don't know how much people will appreciate that. it's academic, but for example, I recently completed a paper for Brookings where they have a lot of um sort of short versions of it created about why China's real estate crisis is may end up looking more like Japan's than you could possibly imagine. >> Okay, we can hopefully follow up on that next time. Thank you so much, Professor Rogoff. It's been a pleasure speaking with you and I look forward to having you back on again. Take care for now. >> Well, thank you, David. Thanks for having me. >> Thank you for watching. Don't forget to like, subscribe, and follow Professor Rooff's works down below.