Latest news with #KennethRogoff
Washington Post
5 days ago
- Business
- Washington Post
Exploding U.S. indebtedness makes a fiscal crisis almost inevitable
Jamie Dimon, the CEO of JPMorgan Chase, was more tantalizing than illuminating when he recently said, regarding the nation's fiscal trajectory, 'You are going to see a crack in the bond market.' Details, even if hypotheticals, would be helpful concerning the market where U.S. debt is sold. Twenty-five percent of Treasury bonds, about $9 trillion worth, are held by foreigners, who surely have noticed a provision in the One Big Beautiful Bill (1,018 pages). Unless and until it is eliminated, the provision empowers presidents to impose a 20 percent tax on interest payments to foreigners. The potential applicability of this to particular countries and kinds of income is unclear. It could be merely America First flag-waving. But foreign bond purchasers, watching the U.S. government scrounge for money as it cuts taxes and swells the national debt in trillion-dollar tranches, surely think: What the provision makes possible is possible. Such a significant devaluation of foreign-purchased Treasury bonds would powerfully prod foreign investors to diversify away from Treasurys, which would raise the cost of U.S. borrowing an unpredictable amount. Concerning which, Kenneth Rogoff is alarmingly plausible. Before he became an intergalactically famous Harvard economics professor, and a peripatetic participant in global financial affairs, he was a professional chess player. Hence his penchant for thinking many moves ahead. 'I have observed that, although the financial system evolves glacially,' he writes in his new book 'Our Dollar, Your Problem,' 'the occasional dramatic turn is to be expected.' What is expected is considered probable. The nation's exploding indebtedness could presage a 'dramatic turn.' 'The amount of marketable U.S. government debt,' Rogoff says, roughly equals 'that of all other advanced countries combined; a similar comparison would hold for corporate debt.' Furthermore, when in 2023 Silicon Valley Bank and some other small and medium-size banks became actuarially bankrupt because of rising interest rates, the Federal Reserve created a facility that implicitly backstopped potential capital losses of all banks, estimated to be more than $2 trillion. The facility has gone away, but the mentality that created it remains. Therefore, so does another potential large increase in government debt. 'The U.S. government has continually increased the size and scope of its implicit bailout guarantees,' Rogoff writes, 'creating what might be termed 'the financial welfare state.'' Those of the 'lower forever' school of thought regarding interest rates are serene about the challenge of servicing the national debt. Rogoff, however, notes that when Ben Bernanke left as Federal Reserve chair in 2014, Bernanke, then 60, 'reportedly began telling private audiences that he did not expect to see 4 percent short-term interest rates again in his lifetime.' Eight years later, such rates reached 5.5 percent, and long-term rates have risen significantly. Rogoff thinks today's higher rates are likely the new normal, resembling the old normal, for many reasons, including 'the massive rise in global debt (public and private).' And 'if the worldwide rise in populism leads to greater income redistribution, that too will increase aggregate demand, since low-income individuals spend a higher share of their earnings.' This would be an inflation risk. Rogoff warns that many believers in 'lower forever' interest rates express the human propensity to believe in a 'supercheap' way to expand 'the footprint of government.' The nation is, however, 'running deficits at such a prolific rate that it is likely headed for trouble.' He rejects 'lazy language' about U.S. government debt obligations being 'safe.' Debt is a temptation for inflation, which is slow-motion repudiation of debt compiled in dollars that are losing their value. (Ninety percent of U.S. debt is not indexed for inflation.) When President Franklin D. Roosevelt abrogated the gold standard backing the currency, the Supreme Court ruled it a default. Also, holders of U.S. bonds were not safe from significant losses during this decade's post-pandemic inflation, or from huge losses during the 1970 inflation. Investors watching U.S. fiscal fecklessness might increasingly demand debt indexed to inflation. 'How sure are we,' Rogoff wonders, 'that no future president would seek a way to effectively abrogate the inflation link out of frustration' that it impeded 'partial default through inflation.' A president could call this putting America first. Projecting the exact arrival of an economic crisis is, Rogoff writes, 'extremely difficult,' an uncertainty shared with medicine. Physicians can identify factors that increase risks of heart attack in patients who nevertheless escape them. And low-risk patients can suffer attacks after being deemed fit as fiddles. Still, today reasonable fiscal physicians discern not just a risk but a high probability of a debt and/or inflation crisis.
Yahoo
6 days ago
- Business
- Yahoo
'Americans Are Not Prepared' Says Harvard Economist About China's De-Dollarization - 'Interest Rates Are Going To Be Higher For A Very, Very Long Time'
Benzinga and Yahoo Finance LLC may earn commission or revenue on some items through the links below. The global role of the U.S. dollar is shifting, and the consequences for interest rates and the American economy could be long-lasting. That's the warning from Kenneth Rogoff, a professor of economics at Harvard University and former chief economist at the International Monetary Fund. In a recent interview with CNBC, Rogoff said the U.S. is entering a new era of fiscal and monetary pressure, driven in part by a long-building move away from the dollar in global markets—particularly in Asia. "It's going to put pressure on the U.S. budget, interest rates, and Americans are not prepared for any of that," Rogoff said. The movement, often referred to as de-dollarization, is not new. But Rogoff believes it's accelerating, and could lead to a world where the dollar no longer dominates global trade and financial flows the way it has for decades. "Asia is half the dollar bloc," Rogoff said. "China... probably should have decoupled significantly from the dollar. It's happening." According to Rogoff, that shift—coupled with U.S. fiscal strain and political pressure on the Federal Reserve—is likely to keep real interest rates elevated far longer than most Americans or investors are expecting. "I think real interest rates are going to be higher for a very, very long time," he said. "That era of low interest rates is over." Check Out: Wall Street has been quietly buying up equity in owner-occupied homes, and the strategy is kind of genius. Here's how one company is using it to produce 15%+ annual returns for its investors. The dollar's global standing has long helped the U.S. finance its deficits and maintain low borrowing costs. When foreign central banks hold dollars or buy U.S. Treasury bonds, it supports demand and keeps interest rates in check. But Rogoff argues that trend is starting to reverse, especially as countries like China reduce their Treasury holdings and shift away from pegging their currencies to the dollar. This is due in part to rising geopolitical tensions and concerns over U.S. sanctions. That doesn't mean the dollar will be replaced overnight—but it does mean its role could be significantly diminished over the next decade. "It's not the same thing as replacing the dollar," Rogoff explained. "But it's certainly going to defang it to some extent." He compared the current moment to the early 1970s, when President Nixon ended the dollar's convertibility to gold, prompting European countries to move away from the U.S. currency. "We lost Europe. It never came back," Rogoff said. "Where is the dollar bloc now? The center is in Asia, and it may not stay that way." If Rogoff is right, a prolonged period of higher interest rates could impact nearly every corner of the U.S. economy. That includes mortgages, credit card rates, business borrowing, and long-term investment returns. It's also likely to put renewed strain on the federal budget. As rates rise, so does the cost of servicing the national debt, which has already surpassed 120% of GDP. Rogoff also raised concerns about the politics surrounding the Federal Reserve. While he praised Fed Chair Jerome Powell's leadership, he cautioned that the institution's independence is not as unshakeable as many believe, especially if it faces growing pressure from the White House or Congress. "There's a lot Trump can do to put pressure on the Fed," he said, noting that proposed appointments or budget threats could undermine market confidence. With both structural and political forces pointing toward higher interest rates, Rogoff warned that most Americans are unprepared for the economic consequences, especially if inflation remains persistent or geopolitical tensions intensify. Don't Miss: See how a $25,000 investment in home equity could outperform stocks in a high-rate economy. Rogoff's outlook suggests it may be time to reevaluate portfolio strategies that were built for a low-rate environment. Some have turned to inflation-protected assets, real estate, and commodities as ways to preserve purchasing power and hedge against currency risk. One area gaining attention is home equity, particularly through investment structures that offer exposure to real property appreciation without relying on rental income or interest payments. The U.S. Home Equity Fund by Homeshares is one such vehicle. It invests in Home Equity Agreements (HEAs), which provide homeowners with cash in exchange for a share of their future home value. It offers accredited investors exposure to real estate appreciation at an accelerated rate with built-in downside protection. The fund's strategy targets a 14%-17% net IRR Because the contracts are tied to actual home values and span multiple markets across the U.S., they offer a type of asset that may remain resilient even if interest rates stay elevated for years. See also: This fund gives you access to the $35 trillion home equity market without buying or managing property. Rogoff's message isn't apocalyptic. The dollar isn't disappearing, and the U.S. economy still has enormous strengths. But ignoring the shifts underway could be a mistake. Whether through higher borrowing costs, reduced global leverage or diminished policy flexibility, the effects of de-dollarization are already being felt. And Rogoff says the trend is only gaining momentum. "Trump has been an accelerant of trends that were already happening," he said. "But the fundamentals were in place no matter who won." The question now isn't whether the era of low rates is over. It's how to adapt to what comes next. See Next: The era of low interest rates is over. But this overlooked real estate strategy is just getting started. Image: Shutterstock This article 'Americans Are Not Prepared' Says Harvard Economist About China's De-Dollarization - 'Interest Rates Are Going To Be Higher For A Very, Very Long Time' originally appeared on © 2025 Benzinga does not provide investment advice. All rights reserved. Sign in to access your portfolio
South China Morning Post
08-06-2025
- Business
- South China Morning Post
Kenneth Rogoff and Yu Yongding on Trump, the dollar and the rise of the yuan
Welcome to Open Dialogue, a new series from the Post where we bring together leading voices to discuss the stories and subjects occupying international headlines. In this inaugural edition, we invited prominent economists from both sides of the Pacific to reflect on the recent turmoil in global trade, the diminishing role of the US dollar and whether China's yuan could – or should – take its place. Professor Kenneth Rogoff of Harvard University has repeatedly warned the US dollar is approaching a crisis of legitimacy. Having written extensively on the global recession in the late 2000s, Rogoff has turned his focus to the US currency's now more unstable place at the top of the world's financial hierarchy. A former chief economist of the International Monetary Fund – and a chess grandmaster – he published Our Dollar, Your Problem in early May. Dr Yu Yongding has been outspoken in his advocacy of a free-floating yuan and broad fiscal stimulus in China. He has also recommended Beijing gradually reduce its holdings of US Treasuries to a level that minimises potential losses. Previously an adviser to China's central bank, he remains an influential voice in policy circles as a senior fellow of the Beijing-based governmental think tank, the Chinese Academy of Social Sciences. What do you think about the future of the US dollar? Will it remain the dominant global currency? Yu Yongding: It can be asserted that foreign investors' demand for US assets, particularly Treasury bonds, will gradually decline, making it increasingly difficult for the US to sustain its balance of payments and maintain a strong dollar. The US dollar is the world's most important reserve currency. Other countries around the world need to hold a certain amount of US dollars to pay for imports, service debts, intervene in foreign exchange markets and meet unexpected needs. The US dollar is primarily invested by its holders in highly liquid short-term US Treasury bonds. In essence, the dollar is essentially an 'IOU' issued by the US government, backed by its own credit.
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Business Standard
07-06-2025
- Business
- Business Standard
Best of BS Opinion: Sizing up the present and prepping for tomorrow
Have you noticed how a good tailor doesn't just note down size. They examine the grain of the fabric, test its stretch, study how it drapes and where it may crease. Precision in measurement matters, but it's the understanding of the material that determines how well a garment fits in motion, not just on paper. Much like today's world where the complexities don't lie in their surface figures, but in the hidden tensions, subtle shifts, and structural weaves beneath. Stitching the world together requires more than tape measures, it demands feel and a keen eye for detail. Let's dive in. Take Donald Trump's proposed second-term economic plan, for instance. On the surface, it's just another size-too-big tax cut, but Kenneth Rogoff reminds us the fabric is strained, federal debt is at 122 per cent of GDP, interest payments outpacing defence spending, and the bond markets growing increasingly restless. The stitchwork that held Reaganomics together no longer fits. Yet both parties seem reluctant to tailor in tighter fiscal seams, even as the dollar's credibility frays. In Tamil Nadu, Kamal Haasan's foray into politics reveals the limits of star power when not matched with political grain. Aditi Phadnis traces his trajectory which contains flashes of brilliance but little drape with the electorate. His alliance with the DMK may buy him a Rajya Sabha seat, but it's clear that charisma alone isn't a cut above unless it's lined with deeper grassroots stitching. Sandeep Goyal draws the contrast between Zeenat Aman's nostalgia-laced but weak Netflix return and Bobby Deol's sharply recut villainous turns. Reinvention requires understanding not just the old silhouette but today's fabric. Campa Cola nailed that, relaunching not with sentiment but with savvy pricing and strategic placement, showing us how legacy can be re-tailored to fit modern demand. Meanwhile, Shekhar Gupta threads through the geopolitical shift along India's borders. Pakistan's brief military flare-up wasn't a standalone patch, but a piece from China's strategic pattern. The drape of conflict has changed, subtle, layered, and stitched from multiple fronts, with Beijing quietly trimming the edges. And finally, Jyoti Mukul brings us to a repair shop in Gurugram where old gadgets are being brought back to life. Sunil Kumar's soldering iron is perhaps the truest metaphor, a reminder that good fixes aren't about replacing parts, but respecting the integrity of what's already there. With India's new Repairability Index and global moves toward circular economies, we're slowly learning to value mends over disposals. Stay tuned, and remember, true mastery lies in seeing how the cloth looks when worn in the real world!
Mint
24-05-2025
- Business
- Mint
Ken Rogoff on How Crypto Is Infiltrating the Dollar's Hegemony
(Bloomberg) -- From the International Monetary Fund to the Federal Reserve, Kenneth Rogoff has spent years inside the institutions that helped shape the dollar-led global economic order. Now, he warns that the dollar's dominance can no longer be taken for granted. In his new book, Our Dollar, Your Problem, the Harvard economist argues that the rise of China, geopolitical tensions and the growing influence of cryptocurrencies are chipping away at the greenback's global standing. In an interview with Bloomberg News, Rogoff spoke about why digital currencies, once dismissed as a fad, are here to stay. The conversation has been edited for brevity and clarity. Q: Why did you include a chapter on cryptocurrencies? A: We're thinking about the future, not just the past. So the book is a sweeping history of the rise of the dollar post-World War II, including how it managed to reach such a high level and how its competitors fell by the wayside. But it's not simply that the dollar became first, but became more dominant than any other currency has ever been. And I see it as in decline — it's fraying at the edges where, of course, the renminbi is breaking free of the dollar, the euro is going to have a larger footprint — that's been going on for a decade. But there's also crypto, because one of the dollar's main markets is the world underground economy. And there, the government does not control things. One of the first questions many people ask is can crypto replace dollars? Crypto can't replace the dollar. But that's in the legal economy where the government has a lot of leverage. But in the underground economy, by definition, it has much less leverage. Q: What is the underground economy? A: It depends on the country. The lion's share is tax evasion. Tax evasion is massive all over the world. The average in the advanced economies is between 15-20%. The United States is one of the lowest — lower than 15%. But in most advanced economies, particularly in Europe, it's much higher. And in developing economies, it's a third of GDP. There's sort of a gray area between what's illegal and what's tax evasion, sometimes they overlap. But a lot of it is what some people might call the gray market, the shadow economy. You don't pay taxes on your nanny, people sometimes pay their painter in cash, their trainer in cash. There are people who pay for apartments in cash. Of course, there's also arms dealing, human trafficking, drugs, etc. But illegal activity's very important, but it's quantitatively much smaller than tax evasion. Q: You argue in your book that Bitcoin has already cut into the dollar's dominance. A: Yes, although crypto has not made significant inroads into the legal economy, it is increasingly used in the global underground economy – consisting of criminal activity but mainly tax and regulatory evasion – where cash, especially US dollars, had been king. The notion that there is no 'fundamental value proposition' in transactions use is just wrong. There are also many countries using crypto to evade US financial sanctions. Q: What are the implications of this? A: The underground global economy is perhaps 20% of global GDP — per my own research and per a World Bank literature survey. This is a big market where the dollar has been particularly dominant. Q: How does crypto cutting into the dollar's dominance raise interest rates for all of us? A: A lower demand for dollars in the global underground economy raises US interest rates, though it is only one of many factors today pushing up rates. The United States' 'exorbitant privilege' — thanks to being by far the most important reserve currency – affects all our interest rates, not just the Treasury bill rate, including mortgages, car loans, student loans, etc. Q: And the second implication is national security? A: In general, a loss of market share of the dollar makes it more difficult for US authorities to monitor financial flows for information that helps preserve national security. Dollar dominance also allows us to impose sanctions. To the extent there is simply a substitution of crypto for paper dollars that were already nearly impossible to trace, there is no new issue. To the extent crypto allows new ways to cloak transactions that had previously gone through normal financial channels, the national security implications of the information loss are much more significant. This challenge is all the more difficult for US regulators to reign in, given that large parts of the rest of the world resent what they see as excessive US control over the financial system, one of the main reasons that we are likely to see continuing diversification away from dollar markets toward other transactions vehicles, something Our Dollar, Your Problem discusses at length. Q: And will crypto's dominance continue to grow? A: Absolutely. Crypto's going to continue taking over the global underground economy on transactions. There are people who think that crypto is going to go to the moon, but there plenty of people — Paul Krugman, Nouriel Roubini, Jamie Dimon, Warren Buffett — who said pretty recently that they think crypto is just a scam. In the crypto chapter, I explain why that's completely wrong. Because if the underground economy is 20% of global GDP that makes it — depending on the value of the dollar — a $20-to-$25 trillion economy. And if you're providing the means of exchange, that's a value proposition. Crypto has value. It's used for transactions. There's a big piece of the economy, which even if crypto's heavily regulated, the government is going to have difficulty controlling. So it's not worthless. There's a lot at stake there. More stories like this are available on
