Speaker 1: Bloomberg Audio Studios, podcasts, radio news Postwnion.
Speaker 2: Tom Keen for all of you worldwide, and right now
Speaker 2: a joy to have an extended conversation with Kenneth Grogoff
Speaker 2: of Harvard University. The scope and scale of his literature,
Speaker 2: from textbooks the classic Maurice Sobsfeld of Berkeley and International Economics,
Speaker 2: over to every effort Carmen Reinhardt and him changing the
Speaker 2: dialogue of America with this time is different. I love
Speaker 2: the subtitle Paul eight Centuries of Financial.
Speaker 1: Following We've enjoyed them all.
Speaker 2: The bravest book I've ever seen in doing this act.
Speaker 2: The Curse of Cash was an exceptionally brave book, going
Speaker 2: head on against corruption, crypto and negative interest rates. And
Speaker 2: now we celebrate, and it is my book of the
Speaker 2: summer in economics, Our Dollar, Your Problem. It's a bright
Speaker 2: green cover, Ken, probably Natasha picked out the green cover.
Speaker 2: Kenneth Grogoff joins us right now, Ken, what a well
Speaker 2: timed book to say the least is a US dollar resilient?
Speaker 3: Well, it's resilient, but maybe it might not be as
Speaker 3: dominant as.
Speaker 1: It once was.
Speaker 2: I look Ken at the scope and scale of your
Speaker 2: work and everybody dovetails it in to your look at
Speaker 2: our fiscal space. We were just talking with way Leah
Speaker 2: Blackrock about this exploding debt, these exploding deficits. As you
Speaker 2: bring out our dollar, your problem is it the same
Speaker 2: old story of angst and worry about the debt and deficit?
Speaker 2: But we move forward or are we at a tipping point?
Speaker 3: Well, I mean, the book is a sweeping history of
Speaker 3: the rise of the dollar after World War Two, all
Speaker 3: the competitors, how hard it is to live with crypto
Speaker 3: and many other things. And by the way, I hope
Speaker 3: I've made it entertaining enough that people will get through it.
Speaker 3: But certainly data is a big piece of it. If
Speaker 3: we think of the future. And Tom, you've had all
Speaker 3: kinds of people on the program. I remember you had
Speaker 3: Olivier Blanchard and Larry Summers and many others who were
Speaker 3: convinced that the interest rates were for a long time,
Speaker 3: we're just going to keep declining forever. So dead is
Speaker 3: a free lunch. That was Olivier's American Economic Association presidential
Speaker 3: address in twenty nineteen. It's a great piece of work,
Speaker 3: but I'm not sure it's a good prediction. I've been
Speaker 3: arguing for a very long time that their real interest
Speaker 3: rates something about the ten year rate, not the Fed
Speaker 3: funds rate, that real interest rates have some convergence to
Speaker 3: mean reversion to mean, what do you know? And that's happened.
Speaker 3: That's what the panic about the DAD is now. It
Speaker 3: always was going to happen. So I think people had
Speaker 3: their head in the sand to think that we were
Speaker 3: safe from that. Maybe AI will save us, but I
Speaker 3: don't think so.
Speaker 1: That's why the debt's filing up.
Speaker 3: Our interest bill is more than doubled, it's about to triple,
Speaker 3: and it's more than our defense budget now.
Speaker 1: So yes, that is, and that and the deficit.
Speaker 3: And by the way, I'm just amazed at how few
Speaker 3: people really understand deficit and debt aren't the same thing.
Speaker 3: I mean, I know most of your listeners do, but
Speaker 3: you'd be so surprised. You know, obviously, the deficits, how
Speaker 3: much you're spending, and the debts, what your credit card
Speaker 3: bill has gotten to. And I think the problem with
Speaker 3: the United States is not Trump, and it's not Biden.
Speaker 1: It's not the right, it's not the left. It's the
Speaker 1: American people.
Speaker 3: Right now just don't believe in any need for raining
Speaker 3: things in and until we have I think another inflation
Speaker 3: crisis or some kind of crisis. I don't think anybody
Speaker 3: is going to be able to achieve that.
Speaker 2: For this and extended conversation, Yale University Press called me
Speaker 2: up to DiCaprio is playing Rogueff in the movie coming
Speaker 2: out in twenty twenty seven.
Speaker 1: I need to sell the book, folks.
Speaker 2: It's wonderfully brief but very deep, and it's wonderfully, wonderfully accessible.
Speaker 2: This is the book you throw at your Brady college
Speaker 2: kid this summer and say shut up and read it.
Speaker 2: He opens, and this goes back to Rochester, New York,
Speaker 2: when he and I used to go up to house
Speaker 2: the guitars years ago. He opens with the economist, Grace
Speaker 2: Slick and Jefferson airplane in Sarajebel. This book is accessible
Speaker 2: when you got Jefferson Airplane in the first key pages.
Speaker 4: Paul Sweeney, Professor, I think most of our listeners, most
Speaker 4: of our viewers over the last several months have kind
Speaker 4: of brushed up on their knowledge of tariffs. Here we've
Speaker 4: all tried to figure out what it all means. How
Speaker 4: do you present the concept of tariffs to your students?
Speaker 3: Well, I'm in I think we when we teach tariffs,
Speaker 3: we're not nestily teaching crazy wild tariffs going all over
Speaker 3: the place. We teach suppose country a PU it's a
Speaker 3: five percent tariff on and country b retaliates by putting
Speaker 3: a five percent tariff. And frankly, if that had been
Speaker 3: all along, what was going on.
Speaker 1: It's a tax. I don't agree with it.
Speaker 3: I don't think it's well conceived, but you know, it
Speaker 3: wouldn't be the end of the world.
Speaker 1: We can cut other taxes.
Speaker 3: What has been, you know, so destabilizing to markets was
Speaker 3: this idea tariffs could be used to solve every problem.
Speaker 1: I just came back from the UK. I don't know
Speaker 1: if you followed this that Trump.
Speaker 3: Wanted the British to have more free speech as part
Speaker 3: of his condition for releasing tariffs and things like that
Speaker 3: all over the world. And you know, I think one
Speaker 3: of the things that's probably cheered markets up as the
Speaker 3: I think one of Trump's better qualities is he as
Speaker 3: a pragmatist, and when something doesn't work, he finds a
Speaker 3: way to back out. And I think everyone sees that's
Speaker 3: what's going on. You played some clips of him from
Speaker 3: Cutter recently him using the word beautiful constantly. Tariffs were beautiful,
Speaker 3: It's going to be a beautiful thing.
Speaker 1: No, it's not. It was a disaster.
Speaker 3: It was probably the worst policy in my five decades
Speaker 3: as an economist. But you know, even though he won't
Speaker 3: admit that it was so dumb, he's retreated, which is smart.
Speaker 3: And so I think that's probably why the markets are
Speaker 3: cheered up.
Speaker 4: The markets are cheered up, Professor. We've seen the stock
Speaker 4: market erase. You know, most of the losses here were
Speaker 4: now flat for the year. But we haven't seen that
Speaker 4: in the dollar. The dollar's really taken a pound here,
Speaker 4: a pounding here. How do you feel about.
Speaker 3: The US dollar here, Well, it's up a shade in
Speaker 3: the last few days. I think I think the dollars
Speaker 3: way over valued. So not for the reasons the administration
Speaker 3: is saying. It's just very high. It's not high because
Speaker 3: the dollar is a reserve currency. The mar A Lago Plan,
Speaker 3: the dollar has been very low, and the dollar has
Speaker 3: been a reserve currency. You know, throughout this the dollar
Speaker 3: goes in roller coaster waves. It's on a super high.
Speaker 3: I would have to go back to two thousand and
Speaker 3: two and before that to nineteen eighty five to see
Speaker 3: anything like it. And what do I mean by high,
Speaker 3: I mean looking at the purchasing power of the dollars,
Speaker 3: so very simplistically, you know, think of yourself as a
Speaker 3: Japanese tourist in the United States or an American tourist
Speaker 3: in Japan. You're going to have very different experiences right
Speaker 3: now than you might have, you know, even ten years ago.
Speaker 1: So Japan's had almost no inflation.
Speaker 3: We've had buckets of inflation making prices high.
Speaker 1: And yet and yet the dollar's gone way.
Speaker 3: Up against the end, and the Euro has had a
Speaker 3: bit of inflation, but less than us. And again the
Speaker 3: dollar's gone up against zero. It's very hard to predict
Speaker 3: exchange rates. If I go back to my long career
Speaker 3: more than forty years ago, my first really well known
Speaker 3: paper was about how hard it was to understand, much
Speaker 3: less predict exchange rates. However, over the years, an exception
Speaker 3: to that has become clear. When something's way out of line.
Speaker 3: The end right now is really low, the dollars really high.
Speaker 3: Over a couple of years, it's going to come down.
Speaker 3: So I think, you know, Trump may take credit for it.
Speaker 3: I wrote a piece about this a year ago. I said,
Speaker 3: that doesn't matter whose president, Gravity is going to bring
Speaker 3: the dollar down.
Speaker 2: Ken Rugoff with this. Folks who celebrate my economic book
Speaker 2: of the summer on YouTube, take a look bright Green,
Speaker 2: cover our dollar your problem. KENN'SO hugely accessible for those
Speaker 2: of you on Bloomberg Radio. It's just simple.
Speaker 1: It's very, very readable.
Speaker 2: And I want to go to one of the chapters
Speaker 2: where there's a bit of heavy lifting. Ken Rogoff, you
Speaker 2: go back to values you started to staying in France.
Speaker 2: Who gave us the phrase exorbitant privilege? Berry ken Green
Speaker 2: has written about it many other worthies is well, are
Speaker 2: we losing our exorbitant privilege? Are we losing the American
Speaker 2: advantage we've had for decades?
Speaker 1: Well, I think it peaked about a decade ago. By
Speaker 1: my reckoning.
Speaker 3: The footprint of the dollar, by some measures, has risen,
Speaker 3: but I think by really some key ones. In particular,
Speaker 3: the one I look at is how foreign central banks
Speaker 3: regulate their economies and their currencies against the dollar. I
Speaker 3: think it was in decline, and my book argues at
Speaker 3: the end of it. It's not the whole book, but
Speaker 3: my book argues at the end of it that in
Speaker 3: edition into the fact that China needs to break free,
Speaker 3: that's just happening, and Asia is half the dollar block,
Speaker 3: so that lowers our footprint. The fact the Europeans also
Speaker 3: hated and if they hadn't screwed up by bringing Greece
Speaker 3: into the European the eurosystem way prematurely, the euro might
Speaker 3: be doing better today.
Speaker 1: And that's all back on track.
Speaker 3: But I think the biggest problems are from within, which
Speaker 3: is that our deficits are out of control, and I
Speaker 3: don't think we're bringing them under control. And I also
Speaker 3: feel federal reserve independence from both the left and the right,
Speaker 3: is under assault.
Speaker 1: Tom, I want to go back.
Speaker 3: I'm so glad you noticed Grace slick by the way
Speaker 3: I bring it in early to show how much other
Speaker 3: countries love the United States and yet they hate the
Speaker 3: United States. And I'll mention you know, I was seventeen
Speaker 3: years old. I think when that I was in a
Speaker 3: bar in Sarajevo. People are singing to the Jefferson airplane
Speaker 3: and I was completely oblivious because I just was so
Speaker 3: close minded that my best someone who has become my
Speaker 3: best friend in chess, was actually giving chess lessons.
Speaker 1: A great slip.
Speaker 2: We should mention here that mister Rogoff, in our ut
Speaker 2: and we all knew this in Western New York, was
Speaker 2: esteemed in the effort of chess and has kept at
Speaker 2: it for years and is well. His affiliation with one B.
Speaker 2: Fisher is noted from his childhood.
Speaker 1: Oh, let's do this, Paul.
Speaker 2: Let's jump in here with a couple more questions with
Speaker 2: Professor Rogoff. We're going to go to news on an
Speaker 2: incredibly busy day rebrief you on the markets, and we're
Speaker 2: thrilled to ken Rogoff will join us on the state
Speaker 2: of America in another section here in a moment, Paul.
Speaker 4: Sweeney, Professor, I think most of our listeners and yours
Speaker 4: grew up at a time where globalization was the backdrop economically.
Speaker 2: Thank you for bringing this up.
Speaker 4: Where is globalization over? I can't think of a world
Speaker 4: where we're not just thinking on a global basis about
Speaker 4: global economics, global politics, global defense.
Speaker 3: Well, we're definitely in a different era than we were.
Speaker 3: I mean, it had been changing before Donald Trump. So actually,
Speaker 3: economists refer to the period up to the financial crisis
Speaker 3: two thousand and eight two thousand and nine as the
Speaker 3: period of hyper globalization and then it really did.
Speaker 1: Slow down a lot.
Speaker 3: Trade growth, slowed down other measures, and you sometimes maybe
Speaker 3: heard the expression slobalization. And now we're definitely in retreat,
Speaker 3: introducing the tariffs, the war, and the Ukraine, the great
Speaker 3: cyber Wall of China that's going up, and I think
Speaker 3: that has dramatic effects for the global economy, for interest rates,
Speaker 3: for inflation.
Speaker 1: It's a big thing.
Speaker 3: Paper at Brookings just over a year ago, of a
Speaker 3: couple of papers with some very talented young co authors,
Speaker 3: Hassan Afrizzi, Marina Hollick and Pierrard. They joke that they
Speaker 3: don't think they're young, because the two of them are
Speaker 3: in the mid forties.
Speaker 1: But I think they're young.
Speaker 3: And Pierre's on Trump's consul of Economic Advisors now, by
Speaker 3: the way, and we argue that this period where it
Speaker 3: was easy sledding for the central banks because globalization made
Speaker 3: it easier to deliver good outcomes, it's over and they're
Speaker 3: in a tougher period.
Speaker 2: Kind of want to get this in. I think it's
Speaker 2: too important as we wait for Michael Barr and then
Speaker 2: it's kind of thrown off. One of the great moments
Speaker 2: of my act was you and Joe Stiglitz together in Davos.
Speaker 2: I thought it was a miracle to get you two
Speaker 2: warring over the years in a collegial way. Joe Stiglitz,
Speaker 2: change the dialogue as you did with this time is
Speaker 2: different with our discontent over globalization and Ken Rogoff, what
Speaker 2: does our next globalization look like?
Speaker 3: I mean, I think we're going to go through a
Speaker 3: period where we're breaking up more. Donald Trump initiated it.
Speaker 3: The Chinese we're doing a lot, so I think we're
Speaker 3: in a period of retreat. I mean, it's very political.
Speaker 3: It's hard to know. I think it'll unfold slowly. The
Speaker 3: princedent historic economic historian Harold James actually wrote a book,
Speaker 3: I think around twenty ten, noting that globalization goes in waves.
Speaker 3: It goes up, it goes down just because it's booming.
Speaker 3: We've had periods what that's happened before, and this kind
Speaker 3: of populous discontent. He it's normal and you get a retreat.
Speaker 3: I think the long term is more, but over the
Speaker 3: next couple of decades maybe.
Speaker 2: Not plustni in time, Keen, what did joy to continue
Speaker 2: with Ken Rogoff? We celebrate my book of the Summer
Speaker 2: Our Dollar at your problem. And as you know always
Speaker 2: with Ken Rogoff, there has to be a money chapter
Speaker 2: on our gross debt. The money chart is on page
Speaker 2: two sixty six, near the end of the book, and
Speaker 2: it is on the all in debt. He and Carmen
Speaker 2: Reinhardt codified this a decade ago, with this time as different. Ken,
Speaker 2: that chart is absolutely jaw dropping of our gross debt.
Speaker 2: I guess full faith and credit corporate and hidden debts
Speaker 2: as well. Is the rest of the world concerned about
Speaker 2: our gross debt?
Speaker 1: Excuse me?
Speaker 3: The United States accounts for roughly half of all advanced
Speaker 3: country debt, we public debt, we account for more than half,
Speaker 3: perhaps of all corporate bonds.
Speaker 1: So we're big. And I think what's hitting the United.
Speaker 3: States now more than the gradual loss of exorbit and
Speaker 3: pribleic What's hitting us is the normalization of interest rates.
Speaker 1: If you're the world's biggest debtor, hurts.
Speaker 2: I mean, I look Ken at the real yield, I say, Ken,
Speaker 2: in a simplistic way, as we look on the Bloomberg terminal,
Speaker 2: I look at the ten year real yield as a.
Speaker 1: Keel absolutely so absolutely I got it. I got a
Speaker 1: C plus.
Speaker 2: He gives out he's like Steve roach a yield he
Speaker 2: gives out no aser bees.
Speaker 1: I'm looking Ken Rogoff for.
Speaker 2: A ten year.
Speaker 1: You must be taking another class than mine.
Speaker 2: But anyway, I look at the ten year real yield
Speaker 2: two point one. Where is a rogue off normal ten
Speaker 2: year real yield?
Speaker 3: Well, it's it's a very volatile it probably think of
Speaker 3: one to five is where it'll settle after all of this.
Speaker 3: I mean it'd gone to minus one. There is a
Speaker 3: slight trend, although it's a little bit hard to know
Speaker 3: if it's up or down. What was so like crazy
Speaker 3: after the financial crisis is the ten year that you're
Speaker 3: looking at the real inflation of trusted interest rate. It
Speaker 3: fell by more than three hundred basis points, even three
Speaker 3: hundred and fifty basis points. And that's when Larry Summers
Speaker 3: came out with secular stagnation. We're never going to grow
Speaker 3: again the interest rate, it's always going to be low.
Speaker 3: And all this stuff about debt is a free lunch
Speaker 3: modern monetary theory. I argued way back when it was
Speaker 3: happening that this is normal after a financial crisis. Don't
Speaker 3: think that this is going to last forever. It happened
Speaker 3: in the great depression, interest rates collapse. It happens in
Speaker 3: many countries in the in the aftermath of a financial crisis.
Speaker 1: So I mean a lot of what's going on.
Speaker 3: It's I think the most that chart you're looking at,
Speaker 3: it's only one way to capture the real interest rate.
Speaker 3: Their others, But I think it's the most important variable
Speaker 3: in the world if you believe that it's going to
Speaker 3: stay on the higher.
Speaker 1: Side, as I do. You know, debt is very hot and.
Speaker 3: It does gradually push up interest rates. The whole world,
Speaker 3: for better or for worse, is remilitarizing. Populism. Deglobalization, which
Speaker 3: we discussed earlier, also pushes up interest rates.
Speaker 1: All of these things.
Speaker 3: I think we could easily see the ten year at
Speaker 3: that now I'm talking about the nominal, which is now
Speaker 3: four something like that. We could see it at five, five,
Speaker 3: six within a couple of years. Given how things are going.
Speaker 3: There are some very smart people, young economists, who think, nope,
Speaker 3: this is a aberration, We're going to go back on
Speaker 3: that downward ride, and debt is a free lunch after all.
Speaker 3: That seems to me a very risky thing to bet
Speaker 3: the farm on.
Speaker 4: Well, that's I mean, Professor that's what a lot of
Speaker 4: folks will come into the studio and tell Tom and
Speaker 4: me that, Hey, as long as investors, both domestic and international,
Speaker 4: continue to show up and buy us treasure securities, nothing
Speaker 4: to worry about. How do you respond to that?
Speaker 3: But let's not confuse that with what interest rate they want. So, yes,
Speaker 3: the market's liquid, but the interest rate we're paying, it's
Speaker 3: been rising, and I predicted it's going to keep rising.
Speaker 3: We're not going to have an Argentina situation. We may
Speaker 3: commit Harry, Harry, you know somehow and refuse to pay
Speaker 3: a debt. We can always inflate, we can use financial repression.
Speaker 3: My book discusses the stuff at length. Any country that
Speaker 3: prints its own money doesn't need to default, sorry about
Speaker 3: my coughing, doesn't need to default.
Speaker 1: But of course inflation is a form of default.
Speaker 3: We had an excess ten percent inflation the last few years,
Speaker 3: maybe twelve, and that was a partial default on us
Speaker 3: dead in real terms. So I actually think we're going
Speaker 3: to get something like that or even a little bigger
Speaker 3: over the certainly the next five to seven years is
Speaker 3: what I say in my book.
Speaker 1: I maybe would pull it back to four years now.
Speaker 3: That I've seen the opening salvos of the Trump administration.
Speaker 2: Ken, at the time, we've got left, I got eight
Speaker 2: ways to go here. You've been more than generous this morning,
Speaker 2: canceling all your classes, and they got you know, I
Speaker 2: want to talk about X ten and what Furman's doing
Speaker 2: up at Harvard. I want to talk about the state
Speaker 2: of Western New York as a wasteland of a former
Speaker 2: industrial might. I got other things to talk about. Ken.
Speaker 1: When you look at American.
Speaker 2: Exceptionalism in the path of our decades and the path forward,
Speaker 2: do you see a continued American exceptionalism after whatever the
Speaker 2: tenure is of President Trump.
Speaker 3: I think it was fading somewhat already in some dimensions,
Speaker 3: but peaking in others. I think we've hit the peak,
Speaker 3: and I think you know.
Speaker 1: I don't.
Speaker 3: I'm not an investor, but I would say this is
Speaker 3: a moment to think about diversification more. I see Europe
Speaker 3: with its forced remilitarization, with its catch up, probably doing
Speaker 3: outperforming the United States. China not so much, but it's
Speaker 3: going to break away from the United States. Thank you
Speaker 3: for mentioning Western New York as a wasteland, because I
Speaker 3: actually talk a lot about our joint hometown of Rochester
Speaker 3: quite a bit in the book.
Speaker 1: But I see.
Speaker 3: Certainly the dollars staying on top, but less on top.
Speaker 1: You mentioned Barry Ikinbreen.
Speaker 3: I mean he wrote and many of us thought twenty
Speaker 3: years ago that we were headed to a more tripolar world.
Speaker 3: I think we're back on course to that. We'll lose
Speaker 3: some of our exceptionalism. It will hurt in national security too.
Speaker 3: There will be other pathways to do transactions. Our sanctions
Speaker 3: won't be as effective, our spying won't be.
Speaker 1: As effective, and a number of other things.
Speaker 3: I think Americans are going to happen to adjust, but
Speaker 3: I think we're going to have a bit a crisis
Speaker 3: of some sort. First, there's no politician and can rent
Speaker 3: it in Until we do that, have one.
Speaker 2: Ket I've failed. We didn't talk about bitcoin in your
Speaker 2: magisterial The Curse of Cash. You got to come back
Speaker 2: at some point here in two thousand and twenty five
Speaker 2: and give us an update on your classic book on
Speaker 2: what I'll call your cryptic book on Crypto, Kenneth rug Off,
Speaker 2: my book of the summer in Economics, Our Dollar, Your Problem.
Speaker 2: For those of you in radio, I'll get it out
Speaker 2: on Twitter and on LinkedIn. Today it is a celebration
Speaker 2: of his academics for decades and also a piercing look
Speaker 2: forward to our debt