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Speaker 1: Bloomberg Audio Studios, podcasts, radio news Postwnion.

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Speaker 2: Tom Keen for all of you worldwide, and right now

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Speaker 2: a joy to have an extended conversation with Kenneth Grogoff

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Speaker 2: of Harvard University. The scope and scale of his literature,

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Speaker 2: from textbooks the classic Maurice Sobsfeld of Berkeley and International Economics,

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Speaker 2: over to every effort Carmen Reinhardt and him changing the

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Speaker 2: dialogue of America with this time is different. I love

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Speaker 2: the subtitle Paul eight Centuries of Financial.

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Speaker 1: Following We've enjoyed them all.

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Speaker 2: The bravest book I've ever seen in doing this act.

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Speaker 2: The Curse of Cash was an exceptionally brave book, going

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Speaker 2: head on against corruption, crypto and negative interest rates. And

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Speaker 2: now we celebrate, and it is my book of the

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Speaker 2: summer in economics, Our Dollar, Your Problem. It's a bright

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Speaker 2: green cover, Ken, probably Natasha picked out the green cover.

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Speaker 2: Kenneth Grogoff joins us right now, Ken, what a well

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Speaker 2: timed book to say the least is a US dollar resilient?

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Speaker 3: Well, it's resilient, but maybe it might not be as

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Speaker 3: dominant as.

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Speaker 1: It once was.

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Speaker 2: I look Ken at the scope and scale of your

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Speaker 2: work and everybody dovetails it in to your look at

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Speaker 2: our fiscal space. We were just talking with way Leah

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Speaker 2: Blackrock about this exploding debt, these exploding deficits. As you

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Speaker 2: bring out our dollar, your problem is it the same

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Speaker 2: old story of angst and worry about the debt and deficit?

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Speaker 2: But we move forward or are we at a tipping point?

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Speaker 3: Well, I mean, the book is a sweeping history of

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Speaker 3: the rise of the dollar after World War Two, all

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Speaker 3: the competitors, how hard it is to live with crypto

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Speaker 3: and many other things. And by the way, I hope

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Speaker 3: I've made it entertaining enough that people will get through it.

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Speaker 3: But certainly data is a big piece of it. If

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Speaker 3: we think of the future. And Tom, you've had all

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Speaker 3: kinds of people on the program. I remember you had

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Speaker 3: Olivier Blanchard and Larry Summers and many others who were

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Speaker 3: convinced that the interest rates were for a long time,

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Speaker 3: we're just going to keep declining forever. So dead is

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Speaker 3: a free lunch. That was Olivier's American Economic Association presidential

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Speaker 3: address in twenty nineteen. It's a great piece of work,

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Speaker 3: but I'm not sure it's a good prediction. I've been

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Speaker 3: arguing for a very long time that their real interest

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Speaker 3: rates something about the ten year rate, not the Fed

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Speaker 3: funds rate, that real interest rates have some convergence to

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Speaker 3: mean reversion to mean, what do you know? And that's happened.

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Speaker 3: That's what the panic about the DAD is now. It

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Speaker 3: always was going to happen. So I think people had

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Speaker 3: their head in the sand to think that we were

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Speaker 3: safe from that. Maybe AI will save us, but I

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Speaker 3: don't think so.

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Speaker 1: That's why the debt's filing up.

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Speaker 3: Our interest bill is more than doubled, it's about to triple,

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Speaker 3: and it's more than our defense budget now.

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Speaker 1: So yes, that is, and that and the deficit.

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Speaker 3: And by the way, I'm just amazed at how few

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Speaker 3: people really understand deficit and debt aren't the same thing.

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Speaker 3: I mean, I know most of your listeners do, but

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Speaker 3: you'd be so surprised. You know, obviously, the deficits, how

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Speaker 3: much you're spending, and the debts, what your credit card

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Speaker 3: bill has gotten to. And I think the problem with

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Speaker 3: the United States is not Trump, and it's not Biden.

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Speaker 1: It's not the right, it's not the left. It's the

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Speaker 1: American people.

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Speaker 3: Right now just don't believe in any need for raining

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Speaker 3: things in and until we have I think another inflation

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Speaker 3: crisis or some kind of crisis. I don't think anybody

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Speaker 3: is going to be able to achieve that.

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Speaker 2: For this and extended conversation, Yale University Press called me

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Speaker 2: up to DiCaprio is playing Rogueff in the movie coming

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Speaker 2: out in twenty twenty seven.

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Speaker 1: I need to sell the book, folks.

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Speaker 2: It's wonderfully brief but very deep, and it's wonderfully, wonderfully accessible.

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Speaker 2: This is the book you throw at your Brady college

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Speaker 2: kid this summer and say shut up and read it.

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Speaker 2: He opens, and this goes back to Rochester, New York,

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Speaker 2: when he and I used to go up to house

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Speaker 2: the guitars years ago. He opens with the economist, Grace

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Speaker 2: Slick and Jefferson airplane in Sarajebel. This book is accessible

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Speaker 2: when you got Jefferson Airplane in the first key pages.

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Speaker 4: Paul Sweeney, Professor, I think most of our listeners, most

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Speaker 4: of our viewers over the last several months have kind

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Speaker 4: of brushed up on their knowledge of tariffs. Here we've

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Speaker 4: all tried to figure out what it all means. How

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Speaker 4: do you present the concept of tariffs to your students?

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Speaker 3: Well, I'm in I think we when we teach tariffs,

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Speaker 3: we're not nestily teaching crazy wild tariffs going all over

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Speaker 3: the place. We teach suppose country a PU it's a

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Speaker 3: five percent tariff on and country b retaliates by putting

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Speaker 3: a five percent tariff. And frankly, if that had been

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Speaker 3: all along, what was going on.

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Speaker 1: It's a tax. I don't agree with it.

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Speaker 3: I don't think it's well conceived, but you know, it

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Speaker 3: wouldn't be the end of the world.

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Speaker 1: We can cut other taxes.

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Speaker 3: What has been, you know, so destabilizing to markets was

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Speaker 3: this idea tariffs could be used to solve every problem.

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Speaker 1: I just came back from the UK. I don't know

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Speaker 1: if you followed this that Trump.

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Speaker 3: Wanted the British to have more free speech as part

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Speaker 3: of his condition for releasing tariffs and things like that

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Speaker 3: all over the world. And you know, I think one

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Speaker 3: of the things that's probably cheered markets up as the

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Speaker 3: I think one of Trump's better qualities is he as

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Speaker 3: a pragmatist, and when something doesn't work, he finds a

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Speaker 3: way to back out. And I think everyone sees that's

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Speaker 3: what's going on. You played some clips of him from

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Speaker 3: Cutter recently him using the word beautiful constantly. Tariffs were beautiful,

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Speaker 3: It's going to be a beautiful thing.

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Speaker 1: No, it's not. It was a disaster.

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Speaker 3: It was probably the worst policy in my five decades

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Speaker 3: as an economist. But you know, even though he won't

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Speaker 3: admit that it was so dumb, he's retreated, which is smart.

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Speaker 3: And so I think that's probably why the markets are

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Speaker 3: cheered up.

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Speaker 4: The markets are cheered up, Professor. We've seen the stock

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Speaker 4: market erase. You know, most of the losses here were

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Speaker 4: now flat for the year. But we haven't seen that

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Speaker 4: in the dollar. The dollar's really taken a pound here,

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Speaker 4: a pounding here. How do you feel about.

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Speaker 3: The US dollar here, Well, it's up a shade in

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Speaker 3: the last few days. I think I think the dollars

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Speaker 3: way over valued. So not for the reasons the administration

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Speaker 3: is saying. It's just very high. It's not high because

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Speaker 3: the dollar is a reserve currency. The mar A Lago Plan,

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Speaker 3: the dollar has been very low, and the dollar has

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Speaker 3: been a reserve currency. You know, throughout this the dollar

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Speaker 3: goes in roller coaster waves. It's on a super high.

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Speaker 3: I would have to go back to two thousand and

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Speaker 3: two and before that to nineteen eighty five to see

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Speaker 3: anything like it. And what do I mean by high,

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Speaker 3: I mean looking at the purchasing power of the dollars,

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Speaker 3: so very simplistically, you know, think of yourself as a

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Speaker 3: Japanese tourist in the United States or an American tourist

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Speaker 3: in Japan. You're going to have very different experiences right

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Speaker 3: now than you might have, you know, even ten years ago.

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Speaker 1: So Japan's had almost no inflation.

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Speaker 3: We've had buckets of inflation making prices high.

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Speaker 1: And yet and yet the dollar's gone way.

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Speaker 3: Up against the end, and the Euro has had a

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Speaker 3: bit of inflation, but less than us. And again the

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Speaker 3: dollar's gone up against zero. It's very hard to predict

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Speaker 3: exchange rates. If I go back to my long career

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Speaker 3: more than forty years ago, my first really well known

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Speaker 3: paper was about how hard it was to understand, much

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Speaker 3: less predict exchange rates. However, over the years, an exception

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Speaker 3: to that has become clear. When something's way out of line.

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Speaker 3: The end right now is really low, the dollars really high.

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Speaker 3: Over a couple of years, it's going to come down.

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Speaker 3: So I think, you know, Trump may take credit for it.

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Speaker 3: I wrote a piece about this a year ago. I said,

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Speaker 3: that doesn't matter whose president, Gravity is going to bring

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Speaker 3: the dollar down.

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Speaker 2: Ken Rugoff with this. Folks who celebrate my economic book

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Speaker 2: of the summer on YouTube, take a look bright Green,

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Speaker 2: cover our dollar your problem. KENN'SO hugely accessible for those

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Speaker 2: of you on Bloomberg Radio. It's just simple.

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Speaker 1: It's very, very readable.

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Speaker 2: And I want to go to one of the chapters

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Speaker 2: where there's a bit of heavy lifting. Ken Rogoff, you

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Speaker 2: go back to values you started to staying in France.

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Speaker 2: Who gave us the phrase exorbitant privilege? Berry ken Green

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Speaker 2: has written about it many other worthies is well, are

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Speaker 2: we losing our exorbitant privilege? Are we losing the American

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Speaker 2: advantage we've had for decades?

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Speaker 1: Well, I think it peaked about a decade ago. By

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Speaker 1: my reckoning.

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Speaker 3: The footprint of the dollar, by some measures, has risen,

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Speaker 3: but I think by really some key ones. In particular,

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Speaker 3: the one I look at is how foreign central banks

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Speaker 3: regulate their economies and their currencies against the dollar. I

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Speaker 3: think it was in decline, and my book argues at

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Speaker 3: the end of it. It's not the whole book, but

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Speaker 3: my book argues at the end of it that in

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Speaker 3: edition into the fact that China needs to break free,

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Speaker 3: that's just happening, and Asia is half the dollar block,

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Speaker 3: so that lowers our footprint. The fact the Europeans also

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Speaker 3: hated and if they hadn't screwed up by bringing Greece

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Speaker 3: into the European the eurosystem way prematurely, the euro might

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Speaker 3: be doing better today.

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Speaker 1: And that's all back on track.

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Speaker 3: But I think the biggest problems are from within, which

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Speaker 3: is that our deficits are out of control, and I

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Speaker 3: don't think we're bringing them under control. And I also

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Speaker 3: feel federal reserve independence from both the left and the right,

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Speaker 3: is under assault.

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Speaker 1: Tom, I want to go back.

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Speaker 3: I'm so glad you noticed Grace slick by the way

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Speaker 3: I bring it in early to show how much other

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Speaker 3: countries love the United States and yet they hate the

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Speaker 3: United States. And I'll mention you know, I was seventeen

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Speaker 3: years old. I think when that I was in a

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Speaker 3: bar in Sarajevo. People are singing to the Jefferson airplane

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Speaker 3: and I was completely oblivious because I just was so

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Speaker 3: close minded that my best someone who has become my

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Speaker 3: best friend in chess, was actually giving chess lessons.

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Speaker 1: A great slip.

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Speaker 2: We should mention here that mister Rogoff, in our ut

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Speaker 2: and we all knew this in Western New York, was

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Speaker 2: esteemed in the effort of chess and has kept at

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Speaker 2: it for years and is well. His affiliation with one B.

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Speaker 2: Fisher is noted from his childhood.

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Speaker 1: Oh, let's do this, Paul.

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Speaker 2: Let's jump in here with a couple more questions with

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Speaker 2: Professor Rogoff. We're going to go to news on an

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Speaker 2: incredibly busy day rebrief you on the markets, and we're

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Speaker 2: thrilled to ken Rogoff will join us on the state

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Speaker 2: of America in another section here in a moment, Paul.

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Speaker 4: Sweeney, Professor, I think most of our listeners and yours

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Speaker 4: grew up at a time where globalization was the backdrop economically.

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Speaker 2: Thank you for bringing this up.

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Speaker 4: Where is globalization over? I can't think of a world

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Speaker 4: where we're not just thinking on a global basis about

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Speaker 4: global economics, global politics, global defense.

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Speaker 3: Well, we're definitely in a different era than we were.

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Speaker 3: I mean, it had been changing before Donald Trump. So actually,

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Speaker 3: economists refer to the period up to the financial crisis

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Speaker 3: two thousand and eight two thousand and nine as the

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Speaker 3: period of hyper globalization and then it really did.

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Speaker 1: Slow down a lot.

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Speaker 3: Trade growth, slowed down other measures, and you sometimes maybe

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Speaker 3: heard the expression slobalization. And now we're definitely in retreat,

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Speaker 3: introducing the tariffs, the war, and the Ukraine, the great

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Speaker 3: cyber Wall of China that's going up, and I think

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Speaker 3: that has dramatic effects for the global economy, for interest rates,

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Speaker 3: for inflation.

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Speaker 1: It's a big thing.

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Speaker 3: Paper at Brookings just over a year ago, of a

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Speaker 3: couple of papers with some very talented young co authors,

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Speaker 3: Hassan Afrizzi, Marina Hollick and Pierrard. They joke that they

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Speaker 3: don't think they're young, because the two of them are

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Speaker 3: in the mid forties.

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Speaker 1: But I think they're young.

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Speaker 3: And Pierre's on Trump's consul of Economic Advisors now, by

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Speaker 3: the way, and we argue that this period where it

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Speaker 3: was easy sledding for the central banks because globalization made

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Speaker 3: it easier to deliver good outcomes, it's over and they're

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Speaker 3: in a tougher period.

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Speaker 2: Kind of want to get this in. I think it's

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Speaker 2: too important as we wait for Michael Barr and then

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Speaker 2: it's kind of thrown off. One of the great moments

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Speaker 2: of my act was you and Joe Stiglitz together in Davos.

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Speaker 2: I thought it was a miracle to get you two

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Speaker 2: warring over the years in a collegial way. Joe Stiglitz,

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Speaker 2: change the dialogue as you did with this time is

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Speaker 2: different with our discontent over globalization and Ken Rogoff, what

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Speaker 2: does our next globalization look like?

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Speaker 3: I mean, I think we're going to go through a

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Speaker 3: period where we're breaking up more. Donald Trump initiated it.

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Speaker 3: The Chinese we're doing a lot, so I think we're

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Speaker 3: in a period of retreat. I mean, it's very political.

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Speaker 3: It's hard to know. I think it'll unfold slowly. The

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Speaker 3: princedent historic economic historian Harold James actually wrote a book,

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Speaker 3: I think around twenty ten, noting that globalization goes in waves.

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Speaker 3: It goes up, it goes down just because it's booming.

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Speaker 3: We've had periods what that's happened before, and this kind

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Speaker 3: of populous discontent. He it's normal and you get a retreat.

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Speaker 3: I think the long term is more, but over the

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Speaker 3: next couple of decades maybe.

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Speaker 2: Not plustni in time, Keen, what did joy to continue

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Speaker 2: with Ken Rogoff? We celebrate my book of the Summer

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Speaker 2: Our Dollar at your problem. And as you know always

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Speaker 2: with Ken Rogoff, there has to be a money chapter

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Speaker 2: on our gross debt. The money chart is on page

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Speaker 2: two sixty six, near the end of the book, and

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Speaker 2: it is on the all in debt. He and Carmen

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Speaker 2: Reinhardt codified this a decade ago, with this time as different. Ken,

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Speaker 2: that chart is absolutely jaw dropping of our gross debt.

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Speaker 2: I guess full faith and credit corporate and hidden debts

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Speaker 2: as well. Is the rest of the world concerned about

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Speaker 2: our gross debt?

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Speaker 1: Excuse me?

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Speaker 3: The United States accounts for roughly half of all advanced

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Speaker 3: country debt, we public debt, we account for more than half,

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Speaker 3: perhaps of all corporate bonds.

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Speaker 1: So we're big. And I think what's hitting the United.

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Speaker 3: States now more than the gradual loss of exorbit and

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Speaker 3: pribleic What's hitting us is the normalization of interest rates.

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Speaker 1: If you're the world's biggest debtor, hurts.

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Speaker 2: I mean, I look Ken at the real yield, I say, Ken,

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Speaker 2: in a simplistic way, as we look on the Bloomberg terminal,

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Speaker 2: I look at the ten year real yield as a.

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Speaker 1: Keel absolutely so absolutely I got it. I got a

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Speaker 1: C plus.

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Speaker 2: He gives out he's like Steve roach a yield he

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Speaker 2: gives out no aser bees.

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Speaker 1: I'm looking Ken Rogoff for.

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Speaker 2: A ten year.

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Speaker 1: You must be taking another class than mine.

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Speaker 2: But anyway, I look at the ten year real yield

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Speaker 2: two point one. Where is a rogue off normal ten

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Speaker 2: year real yield?

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Speaker 3: Well, it's it's a very volatile it probably think of

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Speaker 3: one to five is where it'll settle after all of this.

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Speaker 3: I mean it'd gone to minus one. There is a

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Speaker 3: slight trend, although it's a little bit hard to know

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Speaker 3: if it's up or down. What was so like crazy

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Speaker 3: after the financial crisis is the ten year that you're

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Speaker 3: looking at the real inflation of trusted interest rate. It

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Speaker 3: fell by more than three hundred basis points, even three

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Speaker 3: hundred and fifty basis points. And that's when Larry Summers

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Speaker 3: came out with secular stagnation. We're never going to grow

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Speaker 3: again the interest rate, it's always going to be low.

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Speaker 3: And all this stuff about debt is a free lunch

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Speaker 3: modern monetary theory. I argued way back when it was

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Speaker 3: happening that this is normal after a financial crisis. Don't

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Speaker 3: think that this is going to last forever. It happened

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Speaker 3: in the great depression, interest rates collapse. It happens in

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Speaker 3: many countries in the in the aftermath of a financial crisis.

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Speaker 1: So I mean a lot of what's going on.

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Speaker 3: It's I think the most that chart you're looking at,

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Speaker 3: it's only one way to capture the real interest rate.

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Speaker 3: Their others, But I think it's the most important variable

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Speaker 3: in the world if you believe that it's going to

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Speaker 3: stay on the higher.

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Speaker 1: Side, as I do. You know, debt is very hot and.

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Speaker 3: It does gradually push up interest rates. The whole world,

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Speaker 3: for better or for worse, is remilitarizing. Populism. Deglobalization, which

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Speaker 3: we discussed earlier, also pushes up interest rates.

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Speaker 1: All of these things.

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Speaker 3: I think we could easily see the ten year at

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Speaker 3: that now I'm talking about the nominal, which is now

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Speaker 3: four something like that. We could see it at five, five,

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Speaker 3: six within a couple of years. Given how things are going.

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Speaker 3: There are some very smart people, young economists, who think, nope,

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Speaker 3: this is a aberration, We're going to go back on

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Speaker 3: that downward ride, and debt is a free lunch after all.

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Speaker 3: That seems to me a very risky thing to bet

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Speaker 3: the farm on.

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Speaker 4: Well, that's I mean, Professor that's what a lot of

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Speaker 4: folks will come into the studio and tell Tom and

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Speaker 4: me that, Hey, as long as investors, both domestic and international,

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Speaker 4: continue to show up and buy us treasure securities, nothing

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Speaker 4: to worry about. How do you respond to that?

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Speaker 3: But let's not confuse that with what interest rate they want. So, yes,

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Speaker 3: the market's liquid, but the interest rate we're paying, it's

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Speaker 3: been rising, and I predicted it's going to keep rising.

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Speaker 3: We're not going to have an Argentina situation. We may

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Speaker 3: commit Harry, Harry, you know somehow and refuse to pay

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Speaker 3: a debt. We can always inflate, we can use financial repression.

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Speaker 3: My book discusses the stuff at length. Any country that

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Speaker 3: prints its own money doesn't need to default, sorry about

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Speaker 3: my coughing, doesn't need to default.

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Speaker 1: But of course inflation is a form of default.

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Speaker 3: We had an excess ten percent inflation the last few years,

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Speaker 3: maybe twelve, and that was a partial default on us

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Speaker 3: dead in real terms. So I actually think we're going

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Speaker 3: to get something like that or even a little bigger

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Speaker 3: over the certainly the next five to seven years is

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Speaker 3: what I say in my book.

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Speaker 1: I maybe would pull it back to four years now.

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Speaker 3: That I've seen the opening salvos of the Trump administration.

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Speaker 2: Ken, at the time, we've got left, I got eight

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Speaker 2: ways to go here. You've been more than generous this morning,

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Speaker 2: canceling all your classes, and they got you know, I

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Speaker 2: want to talk about X ten and what Furman's doing

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Speaker 2: up at Harvard. I want to talk about the state

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Speaker 2: of Western New York as a wasteland of a former

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Speaker 2: industrial might. I got other things to talk about. Ken.

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Speaker 1: When you look at American.

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Speaker 2: Exceptionalism in the path of our decades and the path forward,

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Speaker 2: do you see a continued American exceptionalism after whatever the

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Speaker 2: tenure is of President Trump.

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Speaker 3: I think it was fading somewhat already in some dimensions,

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Speaker 3: but peaking in others. I think we've hit the peak,

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Speaker 3: and I think you know.

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Speaker 1: I don't.

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Speaker 3: I'm not an investor, but I would say this is

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Speaker 3: a moment to think about diversification more. I see Europe

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Speaker 3: with its forced remilitarization, with its catch up, probably doing

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Speaker 3: outperforming the United States. China not so much, but it's

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Speaker 3: going to break away from the United States. Thank you

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Speaker 3: for mentioning Western New York as a wasteland, because I

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Speaker 3: actually talk a lot about our joint hometown of Rochester

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Speaker 3: quite a bit in the book.

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Speaker 1: But I see.

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Speaker 3: Certainly the dollars staying on top, but less on top.

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Speaker 1: You mentioned Barry Ikinbreen.

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Speaker 3: I mean he wrote and many of us thought twenty

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Speaker 3: years ago that we were headed to a more tripolar world.

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Speaker 3: I think we're back on course to that. We'll lose

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Speaker 3: some of our exceptionalism. It will hurt in national security too.

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Speaker 3: There will be other pathways to do transactions. Our sanctions

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Speaker 3: won't be as effective, our spying won't be.

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Speaker 1: As effective, and a number of other things.

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Speaker 3: I think Americans are going to happen to adjust, but

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Speaker 3: I think we're going to have a bit a crisis

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Speaker 3: of some sort. First, there's no politician and can rent

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Speaker 3: it in Until we do that, have one.

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Speaker 2: Ket I've failed. We didn't talk about bitcoin in your

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Speaker 2: magisterial The Curse of Cash. You got to come back

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Speaker 2: at some point here in two thousand and twenty five

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Speaker 2: and give us an update on your classic book on

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Speaker 2: what I'll call your cryptic book on Crypto, Kenneth rug Off,

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Speaker 2: my book of the summer in Economics, Our Dollar, Your Problem.

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Speaker 2: For those of you in radio, I'll get it out

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Speaker 2: on Twitter and on LinkedIn. Today it is a celebration

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Speaker 2: of his academics for decades and also a piercing look

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Speaker 2: forward to our debt