Bloomberg Audio Studios, podcasts, radio news Postwnion.
Tom Keen for all of you worldwide, and right now a joy to have an extended conversation with Kenneth Grogoff of Harvard University. The scope and scale of his literature, from textbooks the classic Maurice Sobsfeld of Berkeley and International Economics, over to every effort Carmen Reinhardt and him changing the dialogue of America with this time is different. I love the subtitle Paul eight Centuries of Financial.
Following We've enjoyed them all.
The bravest book I've ever seen in doing this act. The Curse of Cash was an exceptionally brave book, going head on against corruption, crypto and negative interest rates. And now we celebrate, and it is my book of the summer in economics, Our Dollar, Your Problem. It's a bright green cover, Ken, probably Natasha picked out the green cover. Kenneth Grogoff joins us right now, Ken, what a well timed book to say the least is a US dollar resilient?
Well, it's resilient, but maybe it might not be as dominant as.
It once was.
I look Ken at the scope and scale of your work and everybody dovetails it in to your look at our fiscal space. We were just talking with way Leah Blackrock about this exploding debt, these exploding deficits. As you bring out our dollar, your problem is it the same old story of angst and worry about the debt and deficit? But we move forward or are we at a tipping point?
Well, I mean, the book is a sweeping history of the rise of the dollar after World War Two, all the competitors, how hard it is to live with crypto and many other things. And by the way, I hope I've made it entertaining enough that people will get through it. But certainly data is a big piece of it. If we think of the future. And Tom, you've had all
kinds of people on the program. I remember you had Olivier Blanchard and Larry Summers and many others who were convinced that the interest rates were for a long time, we're just going to keep declining forever. So dead is a free lunch. That was Olivier's American Economic Association presidential address in twenty nineteen. It's a great piece of work,
but I'm not sure it's a good prediction. I've been arguing for a very long time that their real interest rates something about the ten year rate, not the Fed funds rate, that real interest rates have some convergence to mean reversion to mean, what do you know? And that's happened. That's what the panic about the DAD is now. It always was going to happen. So I think people had their head in the sand to think that we were safe from that. Maybe AI will save us, but I don't think so.
That's why the debt's filing up.
Our interest bill is more than doubled, it's about to triple, and it's more than our defense budget now.
So yes, that is, and that and the deficit.
And by the way, I'm just amazed at how few people really understand deficit and debt aren't the same thing. I mean, I know most of your listeners do, but you'd be so surprised. You know, obviously, the deficits, how much you're spending, and the debts, what your credit card bill has gotten to. And I think the problem with the United States is not Trump, and it's not Biden.
It's not the right, it's not the left. It's the American people.
Right now just don't believe in any need for raining things in and until we have I think another inflation crisis or some kind of crisis. I don't think anybody is going to be able to achieve that.
For this and extended conversation, Yale University Press called me up to DiCaprio is playing Rogueff in the movie coming out in twenty twenty seven.
I need to sell the book, folks.
It's wonderfully brief but very deep, and it's wonderfully, wonderfully accessible. This is the book you throw at your Brady college kid this summer and say shut up and read it. He opens, and this goes back to Rochester, New York, when he and I used to go up to house the guitars years ago. He opens with the economist, Grace Slick and Jefferson airplane in Sarajebel. This book is accessible when you got Jefferson Airplane in the first key pages.
Paul Sweeney, Professor, I think most of our listeners, most of our viewers over the last several months have kind of brushed up on their knowledge of tariffs. Here we've all tried to figure out what it all means. How do you present the concept of tariffs to your students?
Well, I'm in I think we when we teach tariffs, we're not nestily teaching crazy wild tariffs going all over the place. We teach suppose country a PU it's a five percent tariff on and country b retaliates by putting a five percent tariff. And frankly, if that had been all along, what was going on.
It's a tax. I don't agree with it.
I don't think it's well conceived, but you know, it wouldn't be the end of the world.
We can cut other taxes.
What has been, you know, so destabilizing to markets was this idea tariffs could be used to solve every problem.
I just came back from the UK. I don't know if you followed this that Trump.
Wanted the British to have more free speech as part of his condition for releasing tariffs and things like that all over the world. And you know, I think one of the things that's probably cheered markets up as the I think one of Trump's better qualities is he as a pragmatist, and when something doesn't work, he finds a way to back out. And I think everyone sees that's what's going on. You played some clips of him from
Cutter recently him using the word beautiful constantly. Tariffs were beautiful, It's going to be a beautiful thing.
No, it's not. It was a disaster.
It was probably the worst policy in my five decades as an economist. But you know, even though he won't admit that it was so dumb, he's retreated, which is smart. And so I think that's probably why the markets are cheered up.
The markets are cheered up, Professor. We've seen the stock market erase. You know, most of the losses here were now flat for the year. But we haven't seen that in the dollar. The dollar's really taken a pound here, a pounding here. How do you feel about.
The US dollar here, Well, it's up a shade in the last few days. I think I think the dollars way over valued. So not for the reasons the administration is saying. It's just very high. It's not high because the dollar is a reserve currency. The mar A Lago Plan, the dollar has been very low, and the dollar has been a reserve currency. You know, throughout this the dollar goes in roller coaster waves. It's on a super high.
I would have to go back to two thousand and two and before that to nineteen eighty five to see anything like it. And what do I mean by high, I mean looking at the purchasing power of the dollars, so very simplistically, you know, think of yourself as a Japanese tourist in the United States or an American tourist in Japan. You're going to have very different experiences right now than you might have, you know, even ten years ago.
So Japan's had almost no inflation.
We've had buckets of inflation making prices high.
And yet and yet the dollar's gone way.
Up against the end, and the Euro has had a bit of inflation, but less than us. And again the dollar's gone up against zero. It's very hard to predict exchange rates. If I go back to my long career more than forty years ago, my first really well known paper was about how hard it was to understand, much less predict exchange rates. However, over the years, an exception to that has become clear. When something's way out of line. The end right now is really low, the dollars really high.
Over a couple of years, it's going to come down. So I think, you know, Trump may take credit for it. I wrote a piece about this a year ago. I said, that doesn't matter whose president, Gravity is going to bring the dollar down.
Ken Rugoff with this. Folks who celebrate my economic book of the summer on YouTube, take a look bright Green, cover our dollar your problem. KENN'SO hugely accessible for those of you on Bloomberg Radio. It's just simple.
It's very, very readable.
And I want to go to one of the chapters where there's a bit of heavy lifting. Ken Rogoff, you go back to values you started to staying in France. Who gave us the phrase exorbitant privilege? Berry ken Green has written about it many other worthies is well, are we losing our exorbitant privilege? Are we losing the American advantage we've had for decades?
Well, I think it peaked about a decade ago. By my reckoning.
The footprint of the dollar, by some measures, has risen, but I think by really some key ones. In particular, the one I look at is how foreign central banks regulate their economies and their currencies against the dollar. I think it was in decline, and my book argues at the end of it. It's not the whole book, but my book argues at the end of it that in edition into the fact that China needs to break free, that's just happening, and Asia is half the dollar block,
so that lowers our footprint. The fact the Europeans also hated and if they hadn't screwed up by bringing Greece into the European the eurosystem way prematurely, the euro might be doing better today.
And that's all back on track.
But I think the biggest problems are from within, which is that our deficits are out of control, and I don't think we're bringing them under control. And I also feel federal reserve independence from both the left and the right, is under assault.
Tom, I want to go back.
I'm so glad you noticed Grace slick by the way I bring it in early to show how much other countries love the United States and yet they hate the United States. And I'll mention you know, I was seventeen years old. I think when that I was in a bar in Sarajevo. People are singing to the Jefferson airplane and I was completely oblivious because I just was so close minded that my best someone who has become my best friend in chess, was actually giving chess lessons.
A great slip.
We should mention here that mister Rogoff, in our ut and we all knew this in Western New York, was esteemed in the effort of chess and has kept at it for years and is well. His affiliation with one B. Fisher is noted from his childhood.
Oh, let's do this, Paul.
Let's jump in here with a couple more questions with Professor Rogoff. We're going to go to news on an incredibly busy day rebrief you on the markets, and we're thrilled to ken Rogoff will join us on the state of America in another section here in a moment, Paul.
Sweeney, Professor, I think most of our listeners and yours grew up at a time where globalization was the backdrop economically.
Thank you for bringing this up.
Where is globalization over? I can't think of a world where we're not just thinking on a global basis about global economics, global politics, global defense.
Well, we're definitely in a different era than we were. I mean, it had been changing before Donald Trump. So actually, economists refer to the period up to the financial crisis two thousand and eight two thousand and nine as the period of hyper globalization and then it really did.
Slow down a lot.
Trade growth, slowed down other measures, and you sometimes maybe heard the expression slobalization. And now we're definitely in retreat, introducing the tariffs, the war, and the Ukraine, the great cyber Wall of China that's going up, and I think that has dramatic effects for the global economy, for interest rates, for inflation.
It's a big thing.
Paper at Brookings just over a year ago, of a couple of papers with some very talented young co authors, Hassan Afrizzi, Marina Hollick and Pierrard. They joke that they don't think they're young, because the two of them are in the mid forties.
But I think they're young.
And Pierre's on Trump's consul of Economic Advisors now, by the way, and we argue that this period where it was easy sledding for the central banks because globalization made it easier to deliver good outcomes, it's over and they're in a tougher period.
Kind of want to get this in. I think it's too important as we wait for Michael Barr and then it's kind of thrown off. One of the great moments of my act was you and Joe Stiglitz together in Davos. I thought it was a miracle to get you two warring over the years in a collegial way. Joe Stiglitz, change the dialogue as you did with this time is different with our discontent over globalization and Ken Rogoff, what does our next globalization look like?
I mean, I think we're going to go through a period where we're breaking up more. Donald Trump initiated it. The Chinese we're doing a lot, so I think we're in a period of retreat. I mean, it's very political. It's hard to know. I think it'll unfold slowly. The princedent historic economic historian Harold James actually wrote a book, I think around twenty ten, noting that globalization goes in waves. It goes up, it goes down just because it's booming.
We've had periods what that's happened before, and this kind of populous discontent. He it's normal and you get a retreat. I think the long term is more, but over the next couple of decades maybe.
Not plustni in time, Keen, what did joy to continue with Ken Rogoff? We celebrate my book of the Summer Our Dollar at your problem. And as you know always with Ken Rogoff, there has to be a money chapter on our gross debt. The money chart is on page two sixty six, near the end of the book, and it is on the all in debt. He and Carmen Reinhardt codified this a decade ago, with this time as different. Ken, that chart is absolutely jaw dropping of our gross debt.
I guess full faith and credit corporate and hidden debts as well. Is the rest of the world concerned about our gross debt?
Excuse me?
The United States accounts for roughly half of all advanced country debt, we public debt, we account for more than half, perhaps of all corporate bonds.
So we're big. And I think what's hitting the United.
States now more than the gradual loss of exorbit and pribleic What's hitting us is the normalization of interest rates.
If you're the world's biggest debtor, hurts.
I mean, I look Ken at the real yield, I say, Ken, in a simplistic way, as we look on the Bloomberg terminal, I look at the ten year real yield as a.
Keel absolutely so absolutely I got it. I got a C plus.
He gives out he's like Steve roach a yield he gives out no aser bees.
I'm looking Ken Rogoff for.
A ten year.
You must be taking another class than mine.
But anyway, I look at the ten year real yield two point one. Where is a rogue off normal ten year real yield?
Well, it's it's a very volatile it probably think of one to five is where it'll settle after all of this. I mean it'd gone to minus one. There is a slight trend, although it's a little bit hard to know if it's up or down. What was so like crazy after the financial crisis is the ten year that you're looking at the real inflation of trusted interest rate. It fell by more than three hundred basis points, even three hundred and fifty basis points. And that's when Larry Summers
came out with secular stagnation. We're never going to grow again the interest rate, it's always going to be low. And all this stuff about debt is a free lunch modern monetary theory. I argued way back when it was happening that this is normal after a financial crisis. Don't think that this is going to last forever. It happened in the great depression, interest rates collapse. It happens in many countries in the in the aftermath of a financial crisis.
So I mean a lot of what's going on.
It's I think the most that chart you're looking at, it's only one way to capture the real interest rate. Their others, But I think it's the most important variable in the world if you believe that it's going to stay on the higher.
Side, as I do. You know, debt is very hot and.
It does gradually push up interest rates. The whole world, for better or for worse, is remilitarizing. Populism. Deglobalization, which we discussed earlier, also pushes up interest rates.
All of these things.
I think we could easily see the ten year at that now I'm talking about the nominal, which is now four something like that. We could see it at five, five, six within a couple of years. Given how things are going. There are some very smart people, young economists, who think, nope, this is a aberration, We're going to go back on that downward ride, and debt is a free lunch after all. That seems to me a very risky thing to bet the farm on.
Well, that's I mean, Professor that's what a lot of folks will come into the studio and tell Tom and me that, Hey, as long as investors, both domestic and international, continue to show up and buy us treasure securities, nothing to worry about. How do you respond to that?
But let's not confuse that with what interest rate they want. So, yes, the market's liquid, but the interest rate we're paying, it's been rising, and I predicted it's going to keep rising. We're not going to have an Argentina situation. We may commit Harry, Harry, you know somehow and refuse to pay a debt. We can always inflate, we can use financial repression.
My book discusses the stuff at length. Any country that prints its own money doesn't need to default, sorry about my coughing, doesn't need to default.
But of course inflation is a form of default.
We had an excess ten percent inflation the last few years, maybe twelve, and that was a partial default on us dead in real terms. So I actually think we're going to get something like that or even a little bigger over the certainly the next five to seven years is what I say in my book.
I maybe would pull it back to four years now.
That I've seen the opening salvos of the Trump administration.
Ken, at the time, we've got left, I got eight ways to go here. You've been more than generous this morning, canceling all your classes, and they got you know, I want to talk about X ten and what Furman's doing up at Harvard. I want to talk about the state of Western New York as a wasteland of a former industrial might. I got other things to talk about. Ken.
When you look at American.
Exceptionalism in the path of our decades and the path forward, do you see a continued American exceptionalism after whatever the tenure is of President Trump.
I think it was fading somewhat already in some dimensions, but peaking in others. I think we've hit the peak, and I think you know.
I don't.
I'm not an investor, but I would say this is a moment to think about diversification more. I see Europe with its forced remilitarization, with its catch up, probably doing outperforming the United States. China not so much, but it's going to break away from the United States. Thank you for mentioning Western New York as a wasteland, because I actually talk a lot about our joint hometown of Rochester quite a bit in the book.
But I see.
Certainly the dollars staying on top, but less on top.
You mentioned Barry Ikinbreen.
I mean he wrote and many of us thought twenty years ago that we were headed to a more tripolar world. I think we're back on course to that. We'll lose some of our exceptionalism. It will hurt in national security too. There will be other pathways to do transactions. Our sanctions won't be as effective, our spying won't be.
As effective, and a number of other things.
I think Americans are going to happen to adjust, but I think we're going to have a bit a crisis of some sort. First, there's no politician and can rent it in Until we do that, have one.
Ket I've failed. We didn't talk about bitcoin in your magisterial The Curse of Cash. You got to come back at some point here in two thousand and twenty five and give us an update on your classic book on what I'll call your cryptic book on Crypto, Kenneth rug Off, my book of the summer in Economics, Our Dollar, Your Problem. For those of you in radio, I'll get it out on Twitter and on LinkedIn. Today it is a celebration of his academics for decades and also a piercing look forward to our debt