Ex-IMF Chief Ken Rogoff: ‘The Federal Reserve is Under Assault,’ Warns Higher Inflation is Coming
Summary
US National Debt: The US national debt is increasing rapidly, growing by $1 trillion every 100 days, raising concerns about financial stability and inflation.
Gold Purchases by Central Banks: Global central banks have purchased over 2,000 tons of gold in the last two years, indicating a shift away from the US dollar and a move towards gold as a safe asset.
Dollar Dominance at Risk: Kenneth Rogoff argues that the dollar's dominance is at risk due to geopolitical tensions and countries diversifying their reserves, potentially reducing the dollar's share of global reserves from 60% to 35-40% over the next decade.
Federal Reserve Independence: The Federal Reserve is under political pressure, which could lead to higher inflation in the long term as political forces challenge its independence.
Interest Rates and Debt: Rising interest rates and high national debt are creating political pressure on the Federal Reserve, potentially leading to inflation and financial instability.
Geopolitical Shifts: Countries are moving away from the dollar due to US sanctions, with China and Europe developing alternative financial systems to reduce reliance on the US financial infrastructure.
Stable Coins and Financial Innovation: The rise of stable coins and digital currencies poses challenges to the traditional financial system, with regulatory concerns about tax evasion and financial stability.
Investment Strategy: Rogoff suggests a diversified portfolio with a focus on indices and acknowledges the lasting role of gold in the financial system, despite the rise of cryptocurrencies like Bitcoin.
Transcript
[Music] Hey everyone, welcome back. I'm Jeremy Saffron. Let's start today's show with a couple of facts that define our current economic reality. First, the US national debt is now growing by a staggering $1 trillion every 100 days. And second, the world is noticing. In response, as we know, global central banks have quietly purchased over $2,000 tons of gold in the last 2 years, the biggest buying spree in modern history. Now, this is a challenging environment. My next guest tackles head-on in his new book, Our Dollar, Your Problem. Now, Kenneth Rugoff is a Harvard University professor and the former chief economist of the International Monetary Fund. Now, he's widely known for his groundbreaking work on financial crisis, particularly his seminal book, This Time is Different. When he writes about systemic risk, the world does listen. Uh, Professor Rogoff, thank you for joining us. Great to have you on Kiko News. >> Oh, thanks for having me, Jeremy. >> Uh, an interesting backdrop of course today. We're waiting on some different things from the economic side with the Fed, but before we do that, let's kind of, you know, get into the core argument and a little bit of the thesis from the book. I mean, it paints a a pretty stark picture. I mean, you lay out the case that the dollar's dominance is at risk, and we know our audience knows that, you know, skeptics have have made similar claims for for decades, and the dollar still remains king. I mean, we've we've definitely seen a lot of countries shift out of the treasuries into things like gold. So, let's get into that a little bit. I mean, let's talk about what you see is the single most compelling evidence that this point of time is truly different. >> Well, just understand it hasn't just been the dollar is way on top and just stayed there. Actually, there have been ups and downs. When the US went off the gold standard in 1971, we stopped being willing to trade dollars for gold. We had a big loss in our market share and actually Europe was the center of the dollar block. It never came back. And we're certainly struggling with our debt, with central bank independence, with keeping stable inflation. And today, half the dollar block, half is in Asia. And as you mentioned, you know, they're uh stocking up on gold for sure. Uh they're cutting back on their holdings of dollars. I think overall and that that puts pressure on us. So just to think it's this constant. We might be king but I think we could be king. The dollar may be king but king of a smaller hill. >> Yeah. Yeah. I mean we're seeing that jump on strong, you know, consumer data one day and then the fall and weak job numbers the next. I mean how do you interpret this intense short-term volatility? Is this just typical market noise or are these early kind of tremors of the broader instability and loss of confidence that you describe in your book? >> Well, I think uh it's short-term instability is a big thing going on. The US dollar was pretty overvalued when Trump came into office. I'm talking about against other currencies. It hadn't been this overvalued for more than 20 years, maybe 2002, 1985. And both times it declined a lot. And yeah, I know it's fallen depending on what index you use, 7%, 10%. But it's going to fall more. So that's more of the short-term volatility. The longer term play is how much is the dollar going to be the lingua frana? How much is it going to be the only thing, the only game in town? And I I think those days are numbered that the dollar, let's say now it has just shy of 60% of reserves. Think in another uh I don't know 10 years of a number like 35 or 40% with other things being the R&B, the euro and and certainly gold uh will be up there. >> Yeah. I I was gonna ask you I mean you know obviously if we push back and critics would immediately bring up you know the TINA principle. there's no other alternative. They'd point to China's demographic crisis, you know, the Europe's kind of fragmentation right now and say the dollar, despite its flaws, is still the cleanest, you know, shirt in the dirty laundry basket, as we like to call it. Uh, how do you respond to the very powerful argument that the dollar will dominate simply because there's nowhere else for the capital to go? >> Well, we've been here before. I mean, it doesn't have to be that just because the dollar is attractive that it's all people want to use. So the euro is certainly a strong alternative of fiat currencies. Uh China can't continue to be as dollarcentric as they are. It's not just the day-to-day trade. It's the back office. If you trade in dollars, the US controls much too much information. That's just unacceptable for them. They know that someday they may want to acquire Taiwan. And when they I'm saying euphemistically and when that happens of course we're going to put on financial sanctions and they don't want to be as vulnerable as they are now. Crypto is taking a piece of things also. Uh so it's it's you know think of it as uh the dollar really really rose during the 21st century but maybe to a point that's not sustainable. that that's what I sort of describe in my book is really lucky to get as dominant. It was not necessarily to be on top but less on top. It's not that somebody else is going to replace it, but it's just going to have less share of the market by a significant amount. >> Yeah, there's there's I'm writing notes as we do this, Professor. There's a couple things I want to get to, but following on that, you know, doesn't this volatility suggest that the market has lost faith in the Federal Reserve's forward guidance? I mean, for years, investors hung on to every word from the Fed. I mean, does this wild swinging on every new data point mean that the market no longer sees a clear kind of predictable policy path coming from our central bank? >> Well, first of all, I want to say the average business, the average person is maybe not like your average listener. They have no idea who runs the Federal Reserve, what it is that it even exists. They kind of look at inflation, their own businesses, their own lives. And on the whole, the Fed has done a pretty good job convincing them it's going to keep inflation low. Although, if you look at surveys of people and businesses, they're definitely thinking they're less uh sure that inflation's going to be low. Uh but certainly the Federal Reserve's under assault. Uh I think it would have been even if the Democrats had won, just to be clear, my book emphatically makes that point. It was written before I knew who would win actually. Uh but you know, Donald Trump sort of going at it uh like he is at everything very uh wholeheartedly uh trying to take control and I it it might be okay for a while, but I think over the long run I I promise you that will lead to higher inflation on average over 10 or 20 years than we would have otherwise. >> Interesting. Okay. Well, we got to unpack that. I mean, we we try to cover the Fed quite a bit on this show and and when we talk about it, I mean, even according to your research, US debt is the primary threat, right? I mean, the Fed's job is to flood inflate in inflation, which means high rates that would make the debt more burden uh obviously a little bit worse. From your perspective, is the Federal Reserve now trapped? I mean, is the mandate to keep prices stable now in direct conflict with the nation's financial stability? Well, I think you see in country after country when government debt costs too much, lot of debt, high interest rates, that's where we are and where we're headed. Uh it creates a lot of political pressure on the central bank to try to lower interest rates to accommodate it, which will result in inflation. We've seen that everywhere. Uh the Federal Reserve is nominally independent, but it could disappear in a week if Congress supported that. I think President Trump once has said he thought he should be made head of the Fed. That actually could happen if Congress wanted it, if it went along with it. So the independence of the Fed's been a great device. It's worked well, but there's a lot of political push back both on the left and the right. That's what really makes it so vulnerable. >> Yeah. Yeah. How's it uh how's it kind of kind of different, right? Because you were just talking that this attack on the Fed would maybe happen even if the Democrats were in power. I mean, that suggests it's not just about one president, but more of this deeper structural problem that you get into in the book. I mean, what's the underlying disease in our political system that you believe makes this kind of pressure of the central bank almost inevitable regardless of who's in charge? >> Yeah. So the problem is we got used to the idea that debt was a free lunch during the 2010s up through the first couple years of the pandemic. Debt seemed like a free lunch. Actually, you know, it's a little bit like if you take out a variable rate mortgage and then discover, oops, the interest rates went up. And that's what happened to the United States. And interest rates have soared. Uh I mean it's a bit of an exaggeration in some ways but the interest payments are bigger than our defense payments now and they're soaring >> and then there's a lot of political pressure. We don't want to pay that much. That puts pressure on the central bank and at the end of the day the central bank has a lot of independence. It's a great device, but if you know the political forces are bringing to bear all the guns they can, uh, the Fed can't indefinitely stand up. I'm not saying that's happening tomorrow. I look at a horizon of four or five years. And I don't I see it happening when there's a shock where we're not bringing our debt down. We're letting it drift up and interest rates are going up and then something happens on top of that. we go look to borrow 20 30% of GDP like we did in the global financial crisis 2008 like we did again during the pandemic and that time the rest of the world by the way couldn't do it as much but the US could we find out the markets are saying I don't know your debt's getting a little high we'll give it to you but at a higher interest rate and then it you sort of get in a vicious circle I I think that's a real risk I would say more than even money over the next four to five years. >> Interesting. Uh because I mean on on on that risk, I mean some obviously would argue that the old gu guard of pure technocrats has kind of had its own significant blind spots. I mean we thought about the 2008 crisis or even the rising wealth inequality. Is this push for governors with different backgrounds an inevitable and perhaps even necessary response from the political system trying to make the Fed more accountable to the public's real world concerns? Even if the process I guess looks messy. >> Well, I mean actually the original you know uh bill that created the Federal Reserve specifies that they come from different backgrounds >> and they actually do. Uh it's just that the central bank independence of the system had worked very well. Now you point out they make mistakes. they have. But boy, you know, compare the performance over the last 20, 30 years with what it was uh over a long period before that, and it's really been much better. I mean, it's been a period where things have gone better. So, I mean, nobody's perfect. The question is, are you going to systematically be trying to inflate? They're certainly not. We had almost deflation during the 2010s. >> Yeah. I was going to ask you about the structure too. I mean, when we look at it from the Federal Reserve, we now have a situation where the executive branch is publicly calling for specific rate cuts while of course at the same time seeking, you know, to change the composition of the Fed's board days before this crucial meeting. Uh, setting aside, you know, the the specific politics on it and and looking at it from your perspective as a financial historian, how does this level of direct executive involvement impact the global perception of the central bank's independence and predictability? Well, I mean, if Trump's successful, it's not good. I mean, it'll undermine it. It's not so original. Presidents have always pressured the central bank, and Nixon actually did it a lot. You can hear it on the Watergate tapes. He really beat up on the Fed and he got them to print money. Uh, but it was sort of behind the scenes whereas, you know, Trump's constantly in front of a camera saying this. But I think, you know, politicians often go through this when they come under pressure. What's a little unique about this moment is that the United States didn't seem to be under urgent pressure and Trump's kind of maybe looking ahead 4 chassis. People sometimes describe him and seeing that he ultimately needs this. Maybe he thinks he's smarter. He surely does. And he just thinks interest rates could be lower. You know, I accept he might be right. Maybe the Fed's been setting them too high, but it's also possible they're too low. If you look at longerterm interest rates, I don't think the markets see eye to eye with President Trump that they're just going to come down. >> Yeah. Yeah. You know, there's a key theme in your book and that is obviously trust. Is this the kind of unforced error you write about? You know, at what point do foreign central banks and global bond holders start demanding a higher premium to hold US debt to compensate for this new layer of perceived political risk? >> Well, I I think they will. I'm surprised it isn't bigger already. Again, I think what you know, Trump might be right near-term and long-term rates I don't think are going to come down that much. 10year, especially 30-year rates, overnight rates, short rates, they could come down. But what worries me is Trump won't be president forever. Even if you're a big fan of his, who knows will come after. And in systems where you don't have this technocratic independence, on average, you do worse. >> Mhm. You know, it's not just a US story, right? I mean, when you look at Japan, they've sustained massive debt levels for decades without a currency collapse. What's the lesson there? Is is Japan kind of the cautionary tailor or a model that kind of proves that high debt countries can stay stable for much longer than we think? >> Well, I'm glad you asked that because people say that and boy is that wrong. >> Yeah. >> I think the right way to look at it is Japan has used what we call financial repression, forced holding of government debt through regulations. They've stuffed it in the insurance companies, the pension funds, the banks. The central bank holds practically 100% of GDP worth of debt. All of this at near zero interest. And you know what? Suddenly they're under a lot of pressure. Inflation's going up. Interest rates are going up. And all of these firms are sort of actuarily bankrupt. The whole system's in trouble. So, uh, and I'd lastly say that repression was not good for growth. I'm not saying it's the only thing that happened to Japan, but Japan was really by some measures as rich or richer than the United States if you go back 35 years. Uh now they they're like looking like Italy. I mean, no offense to my many Italian friends, but Mississippi is richer than Italy. Uh it's fallen tremendously. So yeah, if we want to go that way, we can do it. Also, the yen is really cheap right now because they're resisting this need to raise interest rates. It's just crazy how low it is. Uh if it's not sustainable either. >> That's interest fascinating uh point about Japan. I mean, you said that they were used for savings and and you know that now with inflation their high debt is suddenly under pressure. Could you elaborate a little bit on that for our audience? I mean what exactly was this mechanism of forced savings and and how did it allow Japan to manage a massive debt to GDP ratio for so long without a crisis? >> Well, you could you know you can uh go in a period where your financial system is not operating that well where people aren't getting that high returns to their investments where the economy is not that dynamic and not have a crisis. Uh it's not the only object. In fact, mo for the most part when rich countries have a lot of debt, they don't necessarily have a crisis, but they when they have really high debt, they tend to have slower growth. Uh and so, you know, their financial system was weighed down. They didn't work their problems out of the system. And so, they got they had this long period of slow growth. But their problem is they're facing this judgment day that they never thought they'd have to face where they've got inflation. They hadn't had it. Inflation, lot of inflation pushing things up. This Bank of Japan, everybody knows it, has to raise interest rates. But then they look around. If we raise interest rates, we make all these financial firms, insurance companies, pension funds, the central bank, everybody actuarily bankrupt. And it's a mess. So, you know, they're caught between a rock and a hard place. >> Does Does the US have a softer, less obvious version of that same model? I mean, considering the trillions of dollars locked in retirement accounts like 401ks that are predominantly invested in US assets and the Fed's own massive balance sheet, are are we more vulnerable to a sudden Japanese style inflation shock than than most American policy makers realize? >> Well, I mean, I I don't know what direction this is going to go. Yeah, >> I think it could be a combination of higher inflation, more force saving, financial repression, could be some form of partial default uh you stay selective default on partial default on foreigners and we saw that in the Senate bill with uh the idea of putting a 20% tax on uh foreign interest earnings. the Council of Economic Advisors had who's now going to also be on the board of governors uh had a paper that got him his job talking about how we needed to have some form of partial default. We could have, god forbid, higher taxes. Uh the Democrats don't want to tax 99% of people and the Republicans don't want to tax anyone. I don't know if that'll happen. There'll be some mix of this. I personally think the most likely of these is some inflation and I I think the markets don't fully absorb that. They think we'll have some rational solution raising taxes. Good luck with that in today's political environment. >> Yeah. I want to shift to the geopolitical angle. I mean specifically that central banks are buying gold as we mentioned in you know record rates. Our audience sees this as a clear move away from the dollar, but is it a real kind of strategic pivot or do you think it's more disaster insurance? I mean, how are you seeing these moves? >> Well, it's sort of both. I mean, it's not only the value. You're investors are looking at the value of gold. >> They're looking at trying to protect themselves against sanctions. They the US, I think, has sanctions on 20 countries at one time. I don't know what it is today. the ones on Russia are massive and getting upped and uh countries like China, they don't want to be exposed to that. Not just China, other countries, even some of our allies don't want to be exposed to us because the dollar is so central. The US is sort of the back office to the financial world. And I think that's where both the Chinese and the Europeans are moving to try to diversify. And you know obviously uh gold has is not particularly easy to sit liquid in the way uh treasury bills are but you control it. And so I think it's it's been for a long time central banks have been moving more into gold. I'm old enough to remember you know the late 1990s when all the central banks said what are we doing with all this gold? We should get rid of it. And I think a lot of them are wishing they hadn't done that and backtracking. So they're not going 100% into gold, but a country like China is still very small in the share of its reserves in gold. I I see that trend continuing. >> Let's layer on that sanction issue that you touched. I mean, you've written about obviously US weaponizing the dollar. It's pretty clear in the book, too. If you're a central banker in a country that could be on the wrong side of the US policy, I mean, aren't you almost forced to build an exit ramp? I mean, how long can the US use the dollar as a weapon before it permanently damages its status? Is that trusted neutral asset we talk about? >> Oh, it's happened. I mean, >> so the question of what's the cost? What are your choices? So certainly China, they are the most important and when China moves more away from the dollar and again Asia is half the dollar block today. Europe's not in the dollar block anymore. Used to be the whole dollar block. as China moves away from the dollar uh some of Asia is going to at least partially follow. So I I think I think this has happened but it's not easy but modern technologies make it a lot easier. All the blockchain uh other developments and digital currencies isn't happening overnight and the US is fighting back with stable coins. Uh but I do think you know at the end of the day both the Europeans and the uh Chinese not to mention other countries it it may be efficient to have the dollar but it's unacceptable to have that degree of information sharing with US authorities to make themselves that vulnerable because they know we live in a geopolitically volatile world. They're not going to allow it. What what are your thoughts on these stable coins, you know, backed by the Treasury? Uh is it a new pitch? Is this a reality that's about to make history here? What are your thoughts? >> Well, I mean, first eventually, I think stable coins are sort of the killer app of blockchain so far, at least of cryptocurrencies. So, there's a there's a great idea there. On the other hand, they do need to be regulated much more than I think is envisioned by the new US law. The problem being that once stable coins are out in the wild, they're not really any more traceable than Bitcoin. And yeah, I know you can trace everything on the blockchain. No, it's not easy to get between past the pseudonyms, the multiple wallets. It's if if somebody sets off a dirty bomb or something, yeah, we'll find them. But for day-to-day tax evasion, it's pretty easy. 20 25% of the global economy is uh tax evasion, illegal activity. So, there's there's a demand, but I I think the uh stable coin regulations still very primitive. We probably we probably need more. I know I'm very unpopular in crypto circles for saying that. >> Well, I think it's going to be very apparent in five or 10 years. >> I was going to ask, I mean, isn't the rapid growth of stable coins simply just a market response to the fact that the official kind of legacy financial system is what people call too slow or expensive for the digital aid? I mean if we regulate them too heavily or try to replace them with a governmentr run kind of digital dollar do we risk stifling that that innovation you know that that solving of real world problem and seeding to this race to other countries. >> Yeah maybe but there's a lot of innovation within this you can do in the banking system and the question is why are stable coins killing the government alternative what we call a central bank digital currency. Sorry for that. But say a fatcoin or a eurocoin, the euro Europeans are very far along on that. Why are stable coins killing it? Because they're like $10,000 bills or $100,000 bills. The Russians and Chinese are trading in stable coins. India and Russia are trading in stable coins. Uh yeah, they like it, but that doesn't mean it's in our interest to build the network effects. You can't ban stable coins. You can't. the the invention's been made. But where I think we made a mistake in our regulation is not being more concerned with all the offramps we're providing which are building network effects and that's what really makes it blow up. There's no problem with having stable coins coexist with dollars, but if you blow it up too much, we're going to have whatever gain we're getting from lower interest rates on US debt. That's what Scott Bessund advertises. We're gonna lose it through tax evasion. And I'm not even talking about terrorism, violence, and uh illegal activity. >> You know, we're seeing reports of countries, particularly those outside of the G7, obviously, begin to settle bilateral trade using dollar pig stable coins, as you kind of talked about. I mean, they're effectively using the dollar, but they completely bypass Swift and and the Treasury's oversight. They're bypassing our oversight, our back office. Exactly. >> Yeah, the back office. But does this represent kind of a new, more technologically advanced form of ddollarization that poses a more immediate threat to uh the US financial supremacy? >> Well, there's sort of two aspects. There's are people ultimately having to hold treasury bills that makes our borrowing cheaper. >> But the other is are we the back office to the world? And a lot of the advantage has been the latter. A lot of the advantage is all the information we collect, all the regulatory control we get. And they're definitely getting around that. They're not just using stable coins. They're developing their own networks, their own uh payment in uh infrastructures. That's going on rapidly. Uh the Europeans, they aren't using dollar stable coins. They're developing their own uh their own system. and the Chinese moving slowly but doing the same thing. >> Um, I got a note here about I was reading the book and the British pound, right? I mean, your your work is so grounded in financial history. I want to talk a little bit about the decline of the British pound almost a century ago. What unforced error made by the UK then do you see is kind of the most potent cautionary tale for US politicians today? >> Well, I don't know if it was an unforced error. They they lost so much in World War I. >> They lost so much in World War II. And we made great sacrifices. Many Americans fought. We paid a lot, >> but they paid a lot more. Uh Europe was destroyed. We were the last country standing. And you, you know, the British still were there after World War I. The dollar was starting to come up, but after World War II, there wasn't another game in town. But that's I I think we have to look at this not as the US is losing a war that then you could lose the dollar supremacy very fast. We can go back to the Dutch Gilder, the Spanish beta, the Portuguese and Kudo and on and on. Uh but we're talking about losing market share. Uh I I think if you went back 20 years ago, I have some maps of this in my book, the dollar wasn't nearly as dominant as today. I think we had some lucky breaks that it got as high as it did. That made our interest rates even lower. And I think the market's going to unwind some of that. We're going to have less market share. Our interest rates will go up. It'll make our debt problem more dire. And eventually we'll have to adjust, but I don't think we will. And that's why I think we'll get some inflation before we do the painful adjustments. when you scan the globe today, I mean, who's who's the credible successor, right, with like the rule of law and open markets kind of ready to take the dollar's place? What do you think? Well, Jeremy, the way I look at this is I'm a big basketball fan and the Boston Celtics won the NBA championship the year before this one >> and they looked like they were on their way to win it again, but then their two best players got injured and they lost to, I'm sorry, New Yorkers, a much weaker New York team. But the New York team won. Well, Europe may not have gotten any better, but the US, I think, is doing a lot of damage to itself with the uh high debt levels, the instability, and you know, frankly, uh this tariffs reduce the desiraability of the dollar. If you build up a big enough tariff wall, and I have a student who works on this and thinks we're almost there, that actually makes the dollar less attractive because at the end of the day, where you hold your money, you want to get goods in and out also. And so I think there are a number of things we're doing that are making the dollar less attractive. Uh cutting our colleges off. uh we have a lot of uh people coming in who you know then want to hold dollars and connect back to their home countries. Our soft power is arguably declining. I mean there are things I think there many things the Trump administration are doing are good. I think this is a downward general trend. >> So again it's not a matter of I wish I you know could show you some of the maps from my book but it's not a matter of all or nothing. It's not a matter of just disappearing. It's a matter of being significantly replaced. Uh what happened in Europe, no more dollar in Europe happening to a greater extent in Asia. And why don't we like that? Because we don't control information the same way and our interest rates will be higher. >> What what does uh you know, imagine we hit breaking news tomorrow and I know it's not tomorrow, professor, and who knows when it's going to be as to all the experts we have on. That's kind of what they say, but it is getting closer. Imagine it was tomorrow. We see the headline, we've lost re reserve status on the dollar. I mean, I want you to paint a picture for us. What does the world look like a week after? What are people on the street experiencing? >> Uh, well, I mean, you know, there's the famous uh Hemingway quote about, you know, the person was asked how they went bankrupt and they say very slowly than all at once. >> Yeah. And I think you have to go through the long slowly period which is interest rates rising. That's really what it is. That's how the market expresses itself. And uh you know we're we're we're back to more normal long-term interest rates now. I think I think they're more likely to go up than down. I I this isn't going to happen tomorrow. Now famous last words. Maybe they won't pass raising the debt ceiling at the end end of September. I think that's when it comes to where they push it off of six months and they don't pass it and like a spoiled child, you know, we default on our debt even though we don't have to. And then who knows what would happen after that. But I think what we're looking at, we're not just going to lose our reserve status even if we have inflation. We're not going to lose our reserve status. We're just going to be, as I said, king of a smaller hill. it will be diminished and we will suffer for it. >> Yeah. I mean in in that kind of chaos, I mean do we see it as an unprecedented rush into tangible assets, gold, silver, even land? I mean does the does the digital financial system we kind of rely on simply just freeze up? >> I think it's a slow burn. So the slowly then suddenly and we're nowhere near the suddenly. Uh it may come to some point where the polit the politicians decide interest payments are getting too big. Uh we just had another big shock. I don't know what uh kind of thing hit the world. We need to raise a lot more revenue. Uh we're going to do something. But I you know I it would take something like that. But the dollar is not going to get knocked off unless there's a a real major war that the US loses anytime soon. That's I don't just don't think it's the right way to look at it. I know it makes a good headline, but I think the right way to look at it is our creeping higher interest rates, our creeping higher debt gets more and more painful. Look at interest payments didn't used to be anything basically five years ago. Now they're bigger than our defense budget and they're set to get a lot higher. >> All right, a quick little lightning round to put a button on some of these themes. Ken, I mean just your brief top of mind reaction first because we never really talk about it. Bitcoin, is it a durable store of value? >> Well, a store of value, I don't know. It's going to fluctuate a ton, but there's 20 or 25% of the world economy's tax evasion, illegal activity, etc. and Bitcoin's always going to play a role there. I mean now it may be more uh used as collateral in that world than actually the transaction but that's not going to go away. So uh Bitcoin will stay on the other hand it's very hard to place a value on that. >> And uh what do you think's the biggest long-term threat to the US economy? Inflation or deplation? Oh, inflation by a mile >> long term. Just Yeah. Yeah. Not going anywhere for a while. >> Just not even It's not even close. >> Yeah. Yeah. And finally, I mean, the the next 10 years, what's more likely that that major US dollar crisis or maybe a major Chinese banking crisis? >> Oh, goodness, the Chinese crisis is here. So, there the the banking crisis, the government owns everything. So, uh will they have a debt crisis? I don't think so. But it's all in my book. China's in a crisis. They're they're looking like Japan and they'll be lucky if they get out with half Japan. And half Japan is still terrible. Uh but uh yeah, I think a dollar crisis is more likely than not uh in some form depends on what we do, but more likely than not some burst of inflation, financial repression, partial defaults not impossible. Uh we could always raise taxes, but that seems to be politically unacceptable. >> Yeah. Yeah. Professor, I mean, this has been a fascinating if if sobering discussion if we've talked about a huge kind of macro scale, but to bring it home for our viewers, I mean, without asking for specific financial advice, how does a leading expert on financial crisis like this uh like yourself uh think about structuring a personal portfolio to kind of be resilient through these kinds of turmoil you've described? Uh well I I mean I tend to hold very bland portfolio of a lot of ind indices. Uh and so you just have to you know it's very hard to second guess the market. I'm not although I study macro I'm not someone who's studying carefully the individual stocks >> and the market's gone up incredibly 32% or something since April. On the other hand you know tomorrow you never know. I I certainly it, you know, particularly when speaking to wealthy people, uh they should hold a much richer variety of assets uh than ordinary people. >> And do you see gold just continuing to to kind of climb here or kind of at least stay stable? >> I do. I mean, you know, we're talking about very long term. I think gold has a lasting role in the international financial system, a lasting role in electronics and other things. And I know everybody says Bitcoin's the new gold. I like to say gold is the new gold. >> Yeah, well said, Professor Ken Rogoth. Uh the new book is our dollar, your problem. It's an essential reading. Thank you for your incredible insights today. Uh we really appreciate this. And of course, the book was sold out for a minute there, but it's back. People can buy it on Amazon. Correct. >> Uh pretty much anywhere you can get it. Uh not necessarily quickly, but it's sold a lot of copies. They print it as fast as they can. >> Yeah. Uh, no, it's a wonderful book. Uh, I appreciate your time. Thank you for this, Professor. >> Thank you. >> Thanks so much. That's all the time we have. Don't forget to hit the subscribe button for Kitco News. I'm Jeremy Saffron. Thanks for watching. [Music] Heat. Heat. [Music]
Ex-IMF Chief Ken Rogoff: ‘The Federal Reserve is Under Assault,’ Warns Higher Inflation is Coming
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Transcript
[Music] Hey everyone, welcome back. I'm Jeremy Saffron. Let's start today's show with a couple of facts that define our current economic reality. First, the US national debt is now growing by a staggering $1 trillion every 100 days. And second, the world is noticing. In response, as we know, global central banks have quietly purchased over $2,000 tons of gold in the last 2 years, the biggest buying spree in modern history. Now, this is a challenging environment. My next guest tackles head-on in his new book, Our Dollar, Your Problem. Now, Kenneth Rugoff is a Harvard University professor and the former chief economist of the International Monetary Fund. Now, he's widely known for his groundbreaking work on financial crisis, particularly his seminal book, This Time is Different. When he writes about systemic risk, the world does listen. Uh, Professor Rogoff, thank you for joining us. Great to have you on Kiko News. >> Oh, thanks for having me, Jeremy. >> Uh, an interesting backdrop of course today. We're waiting on some different things from the economic side with the Fed, but before we do that, let's kind of, you know, get into the core argument and a little bit of the thesis from the book. I mean, it paints a a pretty stark picture. I mean, you lay out the case that the dollar's dominance is at risk, and we know our audience knows that, you know, skeptics have have made similar claims for for decades, and the dollar still remains king. I mean, we've we've definitely seen a lot of countries shift out of the treasuries into things like gold. So, let's get into that a little bit. I mean, let's talk about what you see is the single most compelling evidence that this point of time is truly different. >> Well, just understand it hasn't just been the dollar is way on top and just stayed there. Actually, there have been ups and downs. When the US went off the gold standard in 1971, we stopped being willing to trade dollars for gold. We had a big loss in our market share and actually Europe was the center of the dollar block. It never came back. And we're certainly struggling with our debt, with central bank independence, with keeping stable inflation. And today, half the dollar block, half is in Asia. And as you mentioned, you know, they're uh stocking up on gold for sure. Uh they're cutting back on their holdings of dollars. I think overall and that that puts pressure on us. So just to think it's this constant. We might be king but I think we could be king. The dollar may be king but king of a smaller hill. >> Yeah. Yeah. I mean we're seeing that jump on strong, you know, consumer data one day and then the fall and weak job numbers the next. I mean how do you interpret this intense short-term volatility? Is this just typical market noise or are these early kind of tremors of the broader instability and loss of confidence that you describe in your book? >> Well, I think uh it's short-term instability is a big thing going on. The US dollar was pretty overvalued when Trump came into office. I'm talking about against other currencies. It hadn't been this overvalued for more than 20 years, maybe 2002, 1985. And both times it declined a lot. And yeah, I know it's fallen depending on what index you use, 7%, 10%. But it's going to fall more. So that's more of the short-term volatility. The longer term play is how much is the dollar going to be the lingua frana? How much is it going to be the only thing, the only game in town? And I I think those days are numbered that the dollar, let's say now it has just shy of 60% of reserves. Think in another uh I don't know 10 years of a number like 35 or 40% with other things being the R&B, the euro and and certainly gold uh will be up there. >> Yeah. I I was gonna ask you I mean you know obviously if we push back and critics would immediately bring up you know the TINA principle. there's no other alternative. They'd point to China's demographic crisis, you know, the Europe's kind of fragmentation right now and say the dollar, despite its flaws, is still the cleanest, you know, shirt in the dirty laundry basket, as we like to call it. Uh, how do you respond to the very powerful argument that the dollar will dominate simply because there's nowhere else for the capital to go? >> Well, we've been here before. I mean, it doesn't have to be that just because the dollar is attractive that it's all people want to use. So the euro is certainly a strong alternative of fiat currencies. Uh China can't continue to be as dollarcentric as they are. It's not just the day-to-day trade. It's the back office. If you trade in dollars, the US controls much too much information. That's just unacceptable for them. They know that someday they may want to acquire Taiwan. And when they I'm saying euphemistically and when that happens of course we're going to put on financial sanctions and they don't want to be as vulnerable as they are now. Crypto is taking a piece of things also. Uh so it's it's you know think of it as uh the dollar really really rose during the 21st century but maybe to a point that's not sustainable. that that's what I sort of describe in my book is really lucky to get as dominant. It was not necessarily to be on top but less on top. It's not that somebody else is going to replace it, but it's just going to have less share of the market by a significant amount. >> Yeah, there's there's I'm writing notes as we do this, Professor. There's a couple things I want to get to, but following on that, you know, doesn't this volatility suggest that the market has lost faith in the Federal Reserve's forward guidance? I mean, for years, investors hung on to every word from the Fed. I mean, does this wild swinging on every new data point mean that the market no longer sees a clear kind of predictable policy path coming from our central bank? >> Well, first of all, I want to say the average business, the average person is maybe not like your average listener. They have no idea who runs the Federal Reserve, what it is that it even exists. They kind of look at inflation, their own businesses, their own lives. And on the whole, the Fed has done a pretty good job convincing them it's going to keep inflation low. Although, if you look at surveys of people and businesses, they're definitely thinking they're less uh sure that inflation's going to be low. Uh but certainly the Federal Reserve's under assault. Uh I think it would have been even if the Democrats had won, just to be clear, my book emphatically makes that point. It was written before I knew who would win actually. Uh but you know, Donald Trump sort of going at it uh like he is at everything very uh wholeheartedly uh trying to take control and I it it might be okay for a while, but I think over the long run I I promise you that will lead to higher inflation on average over 10 or 20 years than we would have otherwise. >> Interesting. Okay. Well, we got to unpack that. I mean, we we try to cover the Fed quite a bit on this show and and when we talk about it, I mean, even according to your research, US debt is the primary threat, right? I mean, the Fed's job is to flood inflate in inflation, which means high rates that would make the debt more burden uh obviously a little bit worse. From your perspective, is the Federal Reserve now trapped? I mean, is the mandate to keep prices stable now in direct conflict with the nation's financial stability? Well, I think you see in country after country when government debt costs too much, lot of debt, high interest rates, that's where we are and where we're headed. Uh it creates a lot of political pressure on the central bank to try to lower interest rates to accommodate it, which will result in inflation. We've seen that everywhere. Uh the Federal Reserve is nominally independent, but it could disappear in a week if Congress supported that. I think President Trump once has said he thought he should be made head of the Fed. That actually could happen if Congress wanted it, if it went along with it. So the independence of the Fed's been a great device. It's worked well, but there's a lot of political push back both on the left and the right. That's what really makes it so vulnerable. >> Yeah. Yeah. How's it uh how's it kind of kind of different, right? Because you were just talking that this attack on the Fed would maybe happen even if the Democrats were in power. I mean, that suggests it's not just about one president, but more of this deeper structural problem that you get into in the book. I mean, what's the underlying disease in our political system that you believe makes this kind of pressure of the central bank almost inevitable regardless of who's in charge? >> Yeah. So the problem is we got used to the idea that debt was a free lunch during the 2010s up through the first couple years of the pandemic. Debt seemed like a free lunch. Actually, you know, it's a little bit like if you take out a variable rate mortgage and then discover, oops, the interest rates went up. And that's what happened to the United States. And interest rates have soared. Uh I mean it's a bit of an exaggeration in some ways but the interest payments are bigger than our defense payments now and they're soaring >> and then there's a lot of political pressure. We don't want to pay that much. That puts pressure on the central bank and at the end of the day the central bank has a lot of independence. It's a great device, but if you know the political forces are bringing to bear all the guns they can, uh, the Fed can't indefinitely stand up. I'm not saying that's happening tomorrow. I look at a horizon of four or five years. And I don't I see it happening when there's a shock where we're not bringing our debt down. We're letting it drift up and interest rates are going up and then something happens on top of that. we go look to borrow 20 30% of GDP like we did in the global financial crisis 2008 like we did again during the pandemic and that time the rest of the world by the way couldn't do it as much but the US could we find out the markets are saying I don't know your debt's getting a little high we'll give it to you but at a higher interest rate and then it you sort of get in a vicious circle I I think that's a real risk I would say more than even money over the next four to five years. >> Interesting. Uh because I mean on on on that risk, I mean some obviously would argue that the old gu guard of pure technocrats has kind of had its own significant blind spots. I mean we thought about the 2008 crisis or even the rising wealth inequality. Is this push for governors with different backgrounds an inevitable and perhaps even necessary response from the political system trying to make the Fed more accountable to the public's real world concerns? Even if the process I guess looks messy. >> Well, I mean actually the original you know uh bill that created the Federal Reserve specifies that they come from different backgrounds >> and they actually do. Uh it's just that the central bank independence of the system had worked very well. Now you point out they make mistakes. they have. But boy, you know, compare the performance over the last 20, 30 years with what it was uh over a long period before that, and it's really been much better. I mean, it's been a period where things have gone better. So, I mean, nobody's perfect. The question is, are you going to systematically be trying to inflate? They're certainly not. We had almost deflation during the 2010s. >> Yeah. I was going to ask you about the structure too. I mean, when we look at it from the Federal Reserve, we now have a situation where the executive branch is publicly calling for specific rate cuts while of course at the same time seeking, you know, to change the composition of the Fed's board days before this crucial meeting. Uh, setting aside, you know, the the specific politics on it and and looking at it from your perspective as a financial historian, how does this level of direct executive involvement impact the global perception of the central bank's independence and predictability? Well, I mean, if Trump's successful, it's not good. I mean, it'll undermine it. It's not so original. Presidents have always pressured the central bank, and Nixon actually did it a lot. You can hear it on the Watergate tapes. He really beat up on the Fed and he got them to print money. Uh, but it was sort of behind the scenes whereas, you know, Trump's constantly in front of a camera saying this. But I think, you know, politicians often go through this when they come under pressure. What's a little unique about this moment is that the United States didn't seem to be under urgent pressure and Trump's kind of maybe looking ahead 4 chassis. People sometimes describe him and seeing that he ultimately needs this. Maybe he thinks he's smarter. He surely does. And he just thinks interest rates could be lower. You know, I accept he might be right. Maybe the Fed's been setting them too high, but it's also possible they're too low. If you look at longerterm interest rates, I don't think the markets see eye to eye with President Trump that they're just going to come down. >> Yeah. Yeah. You know, there's a key theme in your book and that is obviously trust. Is this the kind of unforced error you write about? You know, at what point do foreign central banks and global bond holders start demanding a higher premium to hold US debt to compensate for this new layer of perceived political risk? >> Well, I I think they will. I'm surprised it isn't bigger already. Again, I think what you know, Trump might be right near-term and long-term rates I don't think are going to come down that much. 10year, especially 30-year rates, overnight rates, short rates, they could come down. But what worries me is Trump won't be president forever. Even if you're a big fan of his, who knows will come after. And in systems where you don't have this technocratic independence, on average, you do worse. >> Mhm. You know, it's not just a US story, right? I mean, when you look at Japan, they've sustained massive debt levels for decades without a currency collapse. What's the lesson there? Is is Japan kind of the cautionary tailor or a model that kind of proves that high debt countries can stay stable for much longer than we think? >> Well, I'm glad you asked that because people say that and boy is that wrong. >> Yeah. >> I think the right way to look at it is Japan has used what we call financial repression, forced holding of government debt through regulations. They've stuffed it in the insurance companies, the pension funds, the banks. The central bank holds practically 100% of GDP worth of debt. All of this at near zero interest. And you know what? Suddenly they're under a lot of pressure. Inflation's going up. Interest rates are going up. And all of these firms are sort of actuarily bankrupt. The whole system's in trouble. So, uh, and I'd lastly say that repression was not good for growth. I'm not saying it's the only thing that happened to Japan, but Japan was really by some measures as rich or richer than the United States if you go back 35 years. Uh now they they're like looking like Italy. I mean, no offense to my many Italian friends, but Mississippi is richer than Italy. Uh it's fallen tremendously. So yeah, if we want to go that way, we can do it. Also, the yen is really cheap right now because they're resisting this need to raise interest rates. It's just crazy how low it is. Uh if it's not sustainable either. >> That's interest fascinating uh point about Japan. I mean, you said that they were used for savings and and you know that now with inflation their high debt is suddenly under pressure. Could you elaborate a little bit on that for our audience? I mean what exactly was this mechanism of forced savings and and how did it allow Japan to manage a massive debt to GDP ratio for so long without a crisis? >> Well, you could you know you can uh go in a period where your financial system is not operating that well where people aren't getting that high returns to their investments where the economy is not that dynamic and not have a crisis. Uh it's not the only object. In fact, mo for the most part when rich countries have a lot of debt, they don't necessarily have a crisis, but they when they have really high debt, they tend to have slower growth. Uh and so, you know, their financial system was weighed down. They didn't work their problems out of the system. And so, they got they had this long period of slow growth. But their problem is they're facing this judgment day that they never thought they'd have to face where they've got inflation. They hadn't had it. Inflation, lot of inflation pushing things up. This Bank of Japan, everybody knows it, has to raise interest rates. But then they look around. If we raise interest rates, we make all these financial firms, insurance companies, pension funds, the central bank, everybody actuarily bankrupt. And it's a mess. So, you know, they're caught between a rock and a hard place. >> Does Does the US have a softer, less obvious version of that same model? I mean, considering the trillions of dollars locked in retirement accounts like 401ks that are predominantly invested in US assets and the Fed's own massive balance sheet, are are we more vulnerable to a sudden Japanese style inflation shock than than most American policy makers realize? >> Well, I mean, I I don't know what direction this is going to go. Yeah, >> I think it could be a combination of higher inflation, more force saving, financial repression, could be some form of partial default uh you stay selective default on partial default on foreigners and we saw that in the Senate bill with uh the idea of putting a 20% tax on uh foreign interest earnings. the Council of Economic Advisors had who's now going to also be on the board of governors uh had a paper that got him his job talking about how we needed to have some form of partial default. We could have, god forbid, higher taxes. Uh the Democrats don't want to tax 99% of people and the Republicans don't want to tax anyone. I don't know if that'll happen. There'll be some mix of this. I personally think the most likely of these is some inflation and I I think the markets don't fully absorb that. They think we'll have some rational solution raising taxes. Good luck with that in today's political environment. >> Yeah. I want to shift to the geopolitical angle. I mean specifically that central banks are buying gold as we mentioned in you know record rates. Our audience sees this as a clear move away from the dollar, but is it a real kind of strategic pivot or do you think it's more disaster insurance? I mean, how are you seeing these moves? >> Well, it's sort of both. I mean, it's not only the value. You're investors are looking at the value of gold. >> They're looking at trying to protect themselves against sanctions. They the US, I think, has sanctions on 20 countries at one time. I don't know what it is today. the ones on Russia are massive and getting upped and uh countries like China, they don't want to be exposed to that. Not just China, other countries, even some of our allies don't want to be exposed to us because the dollar is so central. The US is sort of the back office to the financial world. And I think that's where both the Chinese and the Europeans are moving to try to diversify. And you know obviously uh gold has is not particularly easy to sit liquid in the way uh treasury bills are but you control it. And so I think it's it's been for a long time central banks have been moving more into gold. I'm old enough to remember you know the late 1990s when all the central banks said what are we doing with all this gold? We should get rid of it. And I think a lot of them are wishing they hadn't done that and backtracking. So they're not going 100% into gold, but a country like China is still very small in the share of its reserves in gold. I I see that trend continuing. >> Let's layer on that sanction issue that you touched. I mean, you've written about obviously US weaponizing the dollar. It's pretty clear in the book, too. If you're a central banker in a country that could be on the wrong side of the US policy, I mean, aren't you almost forced to build an exit ramp? I mean, how long can the US use the dollar as a weapon before it permanently damages its status? Is that trusted neutral asset we talk about? >> Oh, it's happened. I mean, >> so the question of what's the cost? What are your choices? So certainly China, they are the most important and when China moves more away from the dollar and again Asia is half the dollar block today. Europe's not in the dollar block anymore. Used to be the whole dollar block. as China moves away from the dollar uh some of Asia is going to at least partially follow. So I I think I think this has happened but it's not easy but modern technologies make it a lot easier. All the blockchain uh other developments and digital currencies isn't happening overnight and the US is fighting back with stable coins. Uh but I do think you know at the end of the day both the Europeans and the uh Chinese not to mention other countries it it may be efficient to have the dollar but it's unacceptable to have that degree of information sharing with US authorities to make themselves that vulnerable because they know we live in a geopolitically volatile world. They're not going to allow it. What what are your thoughts on these stable coins, you know, backed by the Treasury? Uh is it a new pitch? Is this a reality that's about to make history here? What are your thoughts? >> Well, I mean, first eventually, I think stable coins are sort of the killer app of blockchain so far, at least of cryptocurrencies. So, there's a there's a great idea there. On the other hand, they do need to be regulated much more than I think is envisioned by the new US law. The problem being that once stable coins are out in the wild, they're not really any more traceable than Bitcoin. And yeah, I know you can trace everything on the blockchain. No, it's not easy to get between past the pseudonyms, the multiple wallets. It's if if somebody sets off a dirty bomb or something, yeah, we'll find them. But for day-to-day tax evasion, it's pretty easy. 20 25% of the global economy is uh tax evasion, illegal activity. So, there's there's a demand, but I I think the uh stable coin regulations still very primitive. We probably we probably need more. I know I'm very unpopular in crypto circles for saying that. >> Well, I think it's going to be very apparent in five or 10 years. >> I was going to ask, I mean, isn't the rapid growth of stable coins simply just a market response to the fact that the official kind of legacy financial system is what people call too slow or expensive for the digital aid? I mean if we regulate them too heavily or try to replace them with a governmentr run kind of digital dollar do we risk stifling that that innovation you know that that solving of real world problem and seeding to this race to other countries. >> Yeah maybe but there's a lot of innovation within this you can do in the banking system and the question is why are stable coins killing the government alternative what we call a central bank digital currency. Sorry for that. But say a fatcoin or a eurocoin, the euro Europeans are very far along on that. Why are stable coins killing it? Because they're like $10,000 bills or $100,000 bills. The Russians and Chinese are trading in stable coins. India and Russia are trading in stable coins. Uh yeah, they like it, but that doesn't mean it's in our interest to build the network effects. You can't ban stable coins. You can't. the the invention's been made. But where I think we made a mistake in our regulation is not being more concerned with all the offramps we're providing which are building network effects and that's what really makes it blow up. There's no problem with having stable coins coexist with dollars, but if you blow it up too much, we're going to have whatever gain we're getting from lower interest rates on US debt. That's what Scott Bessund advertises. We're gonna lose it through tax evasion. And I'm not even talking about terrorism, violence, and uh illegal activity. >> You know, we're seeing reports of countries, particularly those outside of the G7, obviously, begin to settle bilateral trade using dollar pig stable coins, as you kind of talked about. I mean, they're effectively using the dollar, but they completely bypass Swift and and the Treasury's oversight. They're bypassing our oversight, our back office. Exactly. >> Yeah, the back office. But does this represent kind of a new, more technologically advanced form of ddollarization that poses a more immediate threat to uh the US financial supremacy? >> Well, there's sort of two aspects. There's are people ultimately having to hold treasury bills that makes our borrowing cheaper. >> But the other is are we the back office to the world? And a lot of the advantage has been the latter. A lot of the advantage is all the information we collect, all the regulatory control we get. And they're definitely getting around that. They're not just using stable coins. They're developing their own networks, their own uh payment in uh infrastructures. That's going on rapidly. Uh the Europeans, they aren't using dollar stable coins. They're developing their own uh their own system. and the Chinese moving slowly but doing the same thing. >> Um, I got a note here about I was reading the book and the British pound, right? I mean, your your work is so grounded in financial history. I want to talk a little bit about the decline of the British pound almost a century ago. What unforced error made by the UK then do you see is kind of the most potent cautionary tale for US politicians today? >> Well, I don't know if it was an unforced error. They they lost so much in World War I. >> They lost so much in World War II. And we made great sacrifices. Many Americans fought. We paid a lot, >> but they paid a lot more. Uh Europe was destroyed. We were the last country standing. And you, you know, the British still were there after World War I. The dollar was starting to come up, but after World War II, there wasn't another game in town. But that's I I think we have to look at this not as the US is losing a war that then you could lose the dollar supremacy very fast. We can go back to the Dutch Gilder, the Spanish beta, the Portuguese and Kudo and on and on. Uh but we're talking about losing market share. Uh I I think if you went back 20 years ago, I have some maps of this in my book, the dollar wasn't nearly as dominant as today. I think we had some lucky breaks that it got as high as it did. That made our interest rates even lower. And I think the market's going to unwind some of that. We're going to have less market share. Our interest rates will go up. It'll make our debt problem more dire. And eventually we'll have to adjust, but I don't think we will. And that's why I think we'll get some inflation before we do the painful adjustments. when you scan the globe today, I mean, who's who's the credible successor, right, with like the rule of law and open markets kind of ready to take the dollar's place? What do you think? Well, Jeremy, the way I look at this is I'm a big basketball fan and the Boston Celtics won the NBA championship the year before this one >> and they looked like they were on their way to win it again, but then their two best players got injured and they lost to, I'm sorry, New Yorkers, a much weaker New York team. But the New York team won. Well, Europe may not have gotten any better, but the US, I think, is doing a lot of damage to itself with the uh high debt levels, the instability, and you know, frankly, uh this tariffs reduce the desiraability of the dollar. If you build up a big enough tariff wall, and I have a student who works on this and thinks we're almost there, that actually makes the dollar less attractive because at the end of the day, where you hold your money, you want to get goods in and out also. And so I think there are a number of things we're doing that are making the dollar less attractive. Uh cutting our colleges off. uh we have a lot of uh people coming in who you know then want to hold dollars and connect back to their home countries. Our soft power is arguably declining. I mean there are things I think there many things the Trump administration are doing are good. I think this is a downward general trend. >> So again it's not a matter of I wish I you know could show you some of the maps from my book but it's not a matter of all or nothing. It's not a matter of just disappearing. It's a matter of being significantly replaced. Uh what happened in Europe, no more dollar in Europe happening to a greater extent in Asia. And why don't we like that? Because we don't control information the same way and our interest rates will be higher. >> What what does uh you know, imagine we hit breaking news tomorrow and I know it's not tomorrow, professor, and who knows when it's going to be as to all the experts we have on. That's kind of what they say, but it is getting closer. Imagine it was tomorrow. We see the headline, we've lost re reserve status on the dollar. I mean, I want you to paint a picture for us. What does the world look like a week after? What are people on the street experiencing? >> Uh, well, I mean, you know, there's the famous uh Hemingway quote about, you know, the person was asked how they went bankrupt and they say very slowly than all at once. >> Yeah. And I think you have to go through the long slowly period which is interest rates rising. That's really what it is. That's how the market expresses itself. And uh you know we're we're we're back to more normal long-term interest rates now. I think I think they're more likely to go up than down. I I this isn't going to happen tomorrow. Now famous last words. Maybe they won't pass raising the debt ceiling at the end end of September. I think that's when it comes to where they push it off of six months and they don't pass it and like a spoiled child, you know, we default on our debt even though we don't have to. And then who knows what would happen after that. But I think what we're looking at, we're not just going to lose our reserve status even if we have inflation. We're not going to lose our reserve status. We're just going to be, as I said, king of a smaller hill. it will be diminished and we will suffer for it. >> Yeah. I mean in in that kind of chaos, I mean do we see it as an unprecedented rush into tangible assets, gold, silver, even land? I mean does the does the digital financial system we kind of rely on simply just freeze up? >> I think it's a slow burn. So the slowly then suddenly and we're nowhere near the suddenly. Uh it may come to some point where the polit the politicians decide interest payments are getting too big. Uh we just had another big shock. I don't know what uh kind of thing hit the world. We need to raise a lot more revenue. Uh we're going to do something. But I you know I it would take something like that. But the dollar is not going to get knocked off unless there's a a real major war that the US loses anytime soon. That's I don't just don't think it's the right way to look at it. I know it makes a good headline, but I think the right way to look at it is our creeping higher interest rates, our creeping higher debt gets more and more painful. Look at interest payments didn't used to be anything basically five years ago. Now they're bigger than our defense budget and they're set to get a lot higher. >> All right, a quick little lightning round to put a button on some of these themes. Ken, I mean just your brief top of mind reaction first because we never really talk about it. Bitcoin, is it a durable store of value? >> Well, a store of value, I don't know. It's going to fluctuate a ton, but there's 20 or 25% of the world economy's tax evasion, illegal activity, etc. and Bitcoin's always going to play a role there. I mean now it may be more uh used as collateral in that world than actually the transaction but that's not going to go away. So uh Bitcoin will stay on the other hand it's very hard to place a value on that. >> And uh what do you think's the biggest long-term threat to the US economy? Inflation or deplation? Oh, inflation by a mile >> long term. Just Yeah. Yeah. Not going anywhere for a while. >> Just not even It's not even close. >> Yeah. Yeah. And finally, I mean, the the next 10 years, what's more likely that that major US dollar crisis or maybe a major Chinese banking crisis? >> Oh, goodness, the Chinese crisis is here. So, there the the banking crisis, the government owns everything. So, uh will they have a debt crisis? I don't think so. But it's all in my book. China's in a crisis. They're they're looking like Japan and they'll be lucky if they get out with half Japan. And half Japan is still terrible. Uh but uh yeah, I think a dollar crisis is more likely than not uh in some form depends on what we do, but more likely than not some burst of inflation, financial repression, partial defaults not impossible. Uh we could always raise taxes, but that seems to be politically unacceptable. >> Yeah. Yeah. Professor, I mean, this has been a fascinating if if sobering discussion if we've talked about a huge kind of macro scale, but to bring it home for our viewers, I mean, without asking for specific financial advice, how does a leading expert on financial crisis like this uh like yourself uh think about structuring a personal portfolio to kind of be resilient through these kinds of turmoil you've described? Uh well I I mean I tend to hold very bland portfolio of a lot of ind indices. Uh and so you just have to you know it's very hard to second guess the market. I'm not although I study macro I'm not someone who's studying carefully the individual stocks >> and the market's gone up incredibly 32% or something since April. On the other hand you know tomorrow you never know. I I certainly it, you know, particularly when speaking to wealthy people, uh they should hold a much richer variety of assets uh than ordinary people. >> And do you see gold just continuing to to kind of climb here or kind of at least stay stable? >> I do. I mean, you know, we're talking about very long term. I think gold has a lasting role in the international financial system, a lasting role in electronics and other things. And I know everybody says Bitcoin's the new gold. I like to say gold is the new gold. >> Yeah, well said, Professor Ken Rogoth. Uh the new book is our dollar, your problem. It's an essential reading. Thank you for your incredible insights today. Uh we really appreciate this. And of course, the book was sold out for a minute there, but it's back. People can buy it on Amazon. Correct. >> Uh pretty much anywhere you can get it. Uh not necessarily quickly, but it's sold a lot of copies. They print it as fast as they can. >> Yeah. Uh, no, it's a wonderful book. Uh, I appreciate your time. Thank you for this, Professor. >> Thank you. >> Thanks so much. That's all the time we have. Don't forget to hit the subscribe button for Kitco News. I'm Jeremy Saffron. Thanks for watching. [Music] Heat. Heat. [Music]