Latest news with #Rogoff
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
Business Insider
15-06-2025
- Business
- Business Insider
'Economic heart attack': 3 top experts detail how they see a possible US debt crisis unfolding
Investor concerns over a swelling government debt load were soothed last week. But some experts say the US isn't out of the woods yet. Goldman Sachs spoke to three top economic experts — Ray Dalio, Ken Rogoff, and Niall Ferguson — about rising debt levels in the US. All three said they were worried about an impending debt crisis, particularly when considering the effects of President Donald Trump's GOP tax and spending bill, which has been estimated to add trillions to the budget deficit over the next decade. That reflects a slightly more pessimistic view than the market. After a scare last month, demand for long-dated government bonds was strong this week. It was a sign that investors are feeling more comfortable about the fiscal situation in the US, after showing nerves last month after Moody's downgraded US debt and Trump's tax bill began making its way through Congress. Here are the top points each of the experts had to make: Ray Dalio, Bridgewater Associates founder The billionaire hedge fund manager said he sees three factors determining the outlook for the US debt. How much the government pays on debt interest relative to its revenue. If interest payments keep rising, it can "unacceptably" prevent the government from spending money on other things. How much debt the government needs to sell relative to demand. If the government needs to sell more Treasurys than people are willing to buy, interest rates will have to rise. That provides a more attractive yield to investors to hold onto the US debt, but high rates also hurt markets and the economy. How much money the central bank needs to print in other to purchase the remaining debt. If demand for US Treasurys is especially weak, the Fed can step in to purchase bonds to keep the government funded. If it has to print more money to do so, that can raise inflation and ding the value of the US dollar. "One can easily measure these signs of deterioration and see movement toward an impending debt crisis," Dalio, who has long warned of troubling debt dynamics in the US, said. "Such a crisis occurs when the constriction of debt-financed spending happens, like a debt-induced economic heart attack." To prevent a crisis, Dalio said he believed the government should reduce the budget deficit to 3% of GDP. Reducing the debt could cause interest rates to decline around 150 basis points, he estimated, reducing interest payments on the national debt and stimulating the economy. Ken Rogoff, Harvard professor and former IMF chief economist Given Trump's current agenda, Rogoff thinks the US will likely enter a debt crisis within the next four to five years. That's faster than the five- to seven-year timeline he predicted prior to Trump's reelection. "The notion that debt is a free lunch that had been pushed by many economy-watchers is absurd," Rogoff said. "Today's larger deficit on top of already-high debt levels is setting up for a crisis that will necessitate a significant adjustment." Rogoff thinks a debt crisis could play out in two ways: Inflation spikes and results in an economic shock. "Exactly what that shock will look like is difficult to say, but it will likely be more painful than the Covid inflation shock that precipitated only relatively minor adjustments in bond markets," Rogoff said. The government could manage the debt by keeping interest rates artificially low and restricting capital flows. But those measures will hurt economic growth and essentially serve as a tax on savers in the economy, he said. Investors have long been concerned about the US debt, but the outlook is especially worrying now because long-term interest rates are going through a "normalization" from low levels that stretched over the past decade, Rogoff said. "People need to recognize that higher interest rates are here to stay and that a return to the low-rate era of the past might well prove wishful thinking," he added. Niall Ferguson, historian and Harvard researcher Ferguson thinks a crisis could be triggered by a military challenge that results in the US losing its position as a global power, as it goes deeper into debt. The British-American financial historian said his favorite gauge to determine how unsustainable national debt was is when a country spends more on interest payments for its debt than on defense. That rule, which he calls "Ferguson's Law," now applies to the US, which spent $1.1 trillion on interest payments on the national debt over the 2024 fiscal year, according to the Treasury Department. It was more than the $883.7 billion approved that year for total defense spending. Nearly every nation that has violated Ferguson's Law has lost its status as " great power" in financial markets, he said. "Any great power that pursues a reckless fiscal policy by allowing the cost of its debt to exceed the cost of its armed services is opening itself up to challenge," Ferguson said. "The US is just the latest great power to find itself in this fiscal jam." The US has been able to borrow as much as it has through now with no issues, in part because the US dollar remains the world's reserve currency and investors still see Treasurys as " risk-free," Ferguson said, meaning they have faith in the US's ability to make good on its interest payments. But that already appears to be shifting, he said, pointing to investors around the world shedding their exposure to US Treasurys and moving away from dollar assets. "I've warned the US is on an unsustainable fiscal path for 20 years now, and so at times have felt like the boy who cried 'wolf,'" Ferguson added.
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
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Business Standard
10-05-2025
- Politics
- Business Standard
Best of BS Opinion: Quiet powers that are shaping a tumultuous world
Have you ever noticed that a candle with a steady flame doesn't scream for attention? It doesn't flare or flicker. It simply holds — quiet, consistent, defiant. In a world hooked on chaos and speed, that kind of constancy is easy to overlook. But this week's stories, wildly different as they are, are all drawn to that image: forces that burn without blinking, whether they illuminate, unsettle or quietly persist. Across economics, politics, technology, and culture, the flame holds its shape—even when winds rise. Today's stories are a reminder of that little flame. Let's dive in Kenneth Rogoff analyses one such flame in the form of a misunderstood economic strategy — the so-called 'Mar-a-Lago Accord' aimed at weakening the US dollar. While presented as a fix for deindustrialisation and trade deficits, the plan, like a draft caught in an open window, misunderstands the physics of the room. It fixates on the currency's strength but forgets to ask why that strength exists. Rogoff gently but firmly lights the path toward real solutions — fiscal discipline and domestic investment, not artificial interventions. In a flickering corner of the literary world, Sandeep Goyal explores the AI-assisted resurrection of Agatha Christie. BBC Maestro's controversial writing course has ignited both admiration and outrage. Is it a tribute, or is it torching ethical lines we've barely drawn? Whether you see it as flame or flammable, it's part of a broader fire catching hold in creative industries — where nostalgia, AI, and commerce spark together, sometimes beautifully, sometimes destructively. Meanwhile, in India's political heart, Aditi Phadnis writes on a rare show of unity amid conflict. 'Operation Sindoor' has seen opposition and government walk side-by-side, drawing on a deep democratic tradition of solidarity during war. Like the candle, this consensus glows steadily — difficult to notice in daylight, deeply reassuring in the dark. But in Shekhar Gupta's piece on Pakistan's General Munir, we meet a man not lighting candles, but stamping them out. His aggressive stance on Kashmir, timed with India's peaceful gestures like the Vande Bharat launch, suggests a deliberate attempt to quench the symbolism of normalcy. When one flame rises, another tries to snuff it. Vanita Kohli-Khandekar closes the loop with a cultural reflection: as Hollywood faces tariffs and internal tremors, its soft power dims. Trump's proposed restrictions on international shoots could hollow out the emotional fire America exports to the world. If that flame flickers, no other nation — despite talent — can quite replace its glow. Stay tuned, and remember, even in the darkest rooms, it's not the storm that matters the most, it's the flame that holds!
Axios
09-05-2025
- Business
- Axios
The dollar's reserve status at risk
The United States is ripping up longstanding trade arrangements, developing more hostile relationships with allies, and undermining independent institutions, all while rapidly running up more debt. The big picture: That's a recipe for the role of the U.S. dollar as global reserve currency — unquestioned since the end of World War II and at a high-water mark just a decade ago — to fade. So argues Ken Rogoff, the Harvard economist and former chief economist at the International Monetary Fund, in a conversation with Axios and in his new book "Our Dollar, Your Problem." President Trump's policies have accelerated that process, Rogoff argues, but it was already set in motion. State of play: When a company in Indonesia does business with one in South Korea, it probably transacts in dollars. When a country in the Middle East runs up huge surpluses from selling oil, it probably parks the money in dollar-denominated investments. And when a bank in Europe does business with a country that is on the outs with the U.S. government, it can face massive fines and risk losing access to the global dollar payments system. Alternatives to the dollar — the euro, the Chinese renminbi — have to this point not been true rivals, as neither offers the kind of deep and open debt markets and institutional frameworks that make them particularly attractive outside their home countries. Zoom out: There have always been aspects of this system that other countries don't like very much — hence the title of Rogoff's book. The U.S. sets fiscal and monetary policies based on its own interest, so countries tethered to the dollar are along for the ride, losing some control over their domestic economies. And the U.S. has used economic sanctions in recent years for an increasingly wide array of goals — in the view of rivals and even allies, acting as a geopolitical bully. That was already setting the stage for other countries to try to bolster their capacity to use other currencies for global commerce. The sense that the U.S. is an unreliable partner is turbocharging that process. What they're saying: "What's happening under Trump is an acceleration of where we were going," Rogoff tells Axios. "He's a catalyst and an accelerant. But I do think if [former Vice President Kamala] Harris had won, the risk would have been pretty big over a longer arc of time, say, five to seven years, than Trump has managed." "This isn't something that just turns overnight, but the rest of the world was already seeking more freedom from the dollar, and this lit a fire under it." "In order for the euro to become more important outside Europe, they need to expand their financial system, the banking networks, in a way that accommodates that, and ditto the Chinese. The Chinese are working very hard at that." The U.S. response to Russia's 2022 invasion of Ukraine lit a fire under the Chinese, Rogoff adds. "They saw what we did with sanctions and that we froze central bank assets." "They have open doors, not just from Russia and North Korea, but large parts of Africa, Asia and Latin America. They don't trust the Chinese, but they don't trust the Americans anymore, either." Several officials in Trump's orbit argue that the U.S.'s reserve currency status — the "exorbitant privilege," as it has been called — comes with a heavy burden and that it is high time for the rest of the world to pay for that. Top White House economist Steve Miran said recently that "our financial dominance comes at a cost." "While it is true that demand for dollars has kept our borrowing rates low, it has also kept currency markets distorted," Miran said. "This process has placed undue burdens on our firms and workers, making their products and labor uncompetitive on the global stage." Yes, but: Rogoff argues that the costs of dollar dominance are more subtle than that, and that the benefits the United States receives are considerable. "If you have a mortgage, you have something to lose, because the exorbitant privilege brings down all interest rates in the United States. Auto loans, student loans, it's a very direct effect," he says. "More subtle but important is when the next crisis hits, if we've lost our exorbitant privilege, we will not be able to borrow as much to fight it. The rest of the world looks in awe at how much the United States is able to borrow" in episodes like the COVID-19 pandemic and the 2008 financial crisis. "There's a national security element. A huge percentage of the global financial network essentially goes through U.S. regulators. The fact that we get all this information makes the U.S. able to ward off terrorist threats, allocate our intelligence services, and use sanctions in place of military interventions."
