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For decades now, America has dominated the global financial system. Our currency is the currency that international trade runs on. Our financial plumbing is the plumbing that basically everybody, to some degree or another, uses. This has been called our \u201cexorbitant privilege.\u201d Because of it, our borrowing costs are lower. Because of it, we know things about the global economy nobody else knows, and have access to information nobody else has access to. We can wrap sanctions around our enemies in a way no one else can. The worry for a long time has been that the world will slip out of this system. There have been challengers. Japan in the \u201980s, the E.U. in the 2000s, and now China. But no one has really come anywhere near dislodging it. The Trump administration has had a much more complicated relationship with this, to say the least. If a country tells me, Sir, we like you very much, but we\u2019re going to no longer adhere to being in the reserve currency. We\u2019re not going to salute the dollar anymore. I\u2019ll say that\u2019s O.K. They\u2019ve come to see dollar dominance as a burden we bear on behalf of the rest of the world, and a burden they should be paying more for the privilege of using. You\u2019re going to pay a 100 percent tariff on everything you sell into the United States. And we love your product. I hope you sell a lot of it into the United States, but you\u2019re going to pay 100 percent tariff. Ken Rogoff is the former chief economist at the International Monetary Fund. He\u2019s a professor of economics at Harvard, and he has a new book coming out, very well timed \u2014 it drops on May 6 \u2014\u00a0which is a history of dollar dominance and a warning that the rest of the world was already beginning to look for exits from it. But now the Trump administration has taken the stress that system was under and begun to put true cracks in it. As always, my email ezrakleinshow@nytimes.com. Ken Rogoff, welcome to the show. Thank you for having me, Ezra. So I want to get at the basics of how the dollar works in the international financial system. We sell dollars to other countries. Other countries buy them. Why so the most important thing is the English analogy. It\u2019s something everyone understands. Partly they know what it is and partly they like it. It\u2019s something they know and trust there. I think 150 plus currencies in the world. And just imagine two people trying to communicate with two currencies they never saw. And let\u2019s just deal in dollars. So that\u2019s a big part of it. It\u2019s like a common language. How did we build that trust. Part of how we built the trust early was the dollar was as good as gold and used to be your dollar bill that you have in your pocket actually said how much it was worth in gold. And you could take it to various places, the bank, banks and get gold for it. And that actually continued for countries until just over 50 years ago. And then we moved to it not being based on gold, it being based on trust in the United States and how we would manage the dollar. Well, we did, but we didn\u2019t tell anyone we were going to do that, and they weren\u2019t very happy about it. I mean, they were holding dollars because they were good as gold and they literally meant gold. And when President Nixon in the early 1971 decided, I don\u2019t want to do that anymore, it was just a shock. It was actually, I think, the biggest shock until recently, but something you often run into when you start trying to study this or pepper conversations about it, is the intensity of the demand for dollar backed assets. And one of things other countries don\u2019t have is the depth of the assets we have to sell. And so it\u2019s not just that the dollar and dollar backed assets like treasuries are. I think, though I like the way you put it, are basically the lingua Franca of international finance. It\u2019s also there\u2019s enough of them to go around. So there\u2019s just not as much liquidity in German currency. Liquidity is an important word. And it means if you want to sell it, do you have to pay a big discount. That if you want to sell your house, you can sell it, but it\u2019s not necessarily something you can sell quickly. So you you\u2019re I don\u2019t know from India and you bought a Treasury bill. You can sell it to anyone in the world. They know what it is. There\u2019s a price, usually not a very big discount from whatever the market price is. Their currency is the rupiah. If you wanted to sell your rupiah abroad, you\u2019d pay a big discount. So deep financial markets rule of law. There are other things open to trade because you can get your money in and out. We\u2019ve had a very open, very open system. I want to be careful, though, about just saying the more we print, the more the demand for it. Nothing could be further from the truth. I mean, actually, as we have more and more debt, the interest rate we pay actually goes up after a while. So there\u2019s a trade off, but we nevertheless we pay a lower interest rate than we would if we were another country trying to do the same thing. So this moves us a bit into the question of what we get for this dominance. Why do we want other countries to buy dollars. It\u2019s free money to us. So when they literally are buying currency, which like the dollar bills in your pocket, that doesn\u2019t pay any interest, and in a way they\u2019re making an interest free loan to us. And there\u2019s the different estimates of how much is abroad. But it\u2019s at least $1 trillion is held abroad. Interest free loan. Much more important is that when they make loans to us in dollars, and that\u2019s the Treasury. Could even be your mortgage getting repurchased somehow because it\u2019s in dollars. Historically, it\u2019s paid a lower interest rate. You get a lower interest rate on your mortgage because someone in China likes dollars. What are the estimates of how much lower borrowing costs are. Interest rates are in America because the whole world is working off of our financial system. So a short answer is for the government, half a percent to a percent, the range of the estimates. That doesn\u2019t mean that we\u2019re paying a lower rate than Germany, because we borrow so much more than Germany. Be very careful about that. But given how much we\u2019re borrowing, think, think of half a percent to a percent. Now, I said, what does that matter when you owe 36 going on $37 trillion. That\u2019s real money. Each percent. But it\u2019s not just the government. It\u2019s your mortgage, your car loan. It pushes down interest rates all over those things your mortgage and your car loan. They can get repackaged in some complicated way, pushed out to Germany, to Japan, to someone else. So it\u2019s affecting everything. So tell me about some of the other benefits. I mean, the dollar dominance, it gets called the exorbitant privilege. Your book is so interesting to read in this moment, because it comes from the perspective that this huge privilege America has, that the other countries that the other countries in the world are growing tired of. And the question is, can we maintain it. And then it comes out at this moment when you have administration that is more or less claiming it to be a burden that the other countries in the world are free riding off of and that we need to begin to pull it back. So why to the rest of the world, does this seem like a great benefit for us. Well, so the phrase exorbitant privilege was coined by Valery Giscard d\u2019Estaing And I literally pardon my French. I\u2019m not saying his name correctly, who didn\u2019t like the idea that the US seemed to pay a lower interest rate. He didn\u2019t like the idea that we seem to be able to borrow so much in a crisis, and he didn\u2019t like the idea that his country needed to hold dollars to fix its exchange rate, which they did. And we were able to take that money and invest it in factories in Europe. So it combined a lot of things. It\u2019s used today often just to refer to how cheaply, you can borrow if you go. During the pandemic, we borrowed twice as much as most other countries were borrowing, but just everybody else looking at Uc was still thinking, Wow, we wish we could do that. And we were able to do it because, for starters, our debt was very low at the beginning and also the interest rate just wasn\u2019t suddenly going up. So they look at it. And when these crises happen, they\u2019re trying. But we\u2019re able to do so much. And as you lose your privilege. And also your debt gets really high. You find that when you try to do it again. Not so much. That\u2019s really the risk. So that\u2019s definitely one of the benefits of being able to borrow a lot when you really, really need it. So you sometimes hear this described negatively as it\u2019s like the rest of the world or dope dealers to America, that it\u2019s made us addicted to debt because we can do this equilibrium where the rest of the world has made it so much easier for us to borrow, and cheaper for us to borrow. Has that been good for us, or has that, as you\u2019ll sometimes hear from the more austerity focused side of the debate, been a kind of net negative because it allowed us to be, in their view, irresponsible? I mean, it\u2019s purely good for us, but where you have to be careful. For example, in the early 2000, we made it a little too easy to come in here with your money and invest it in ways that the government was backing. We deregulated too fast. It was sucking money in. So we didn\u2019t just have the exorbitant privilege we had. You come here and not a lot of regulation. It\u2019s really cool. And that blew up into the financial crisis. So you want to be careful between everyone loves us because we\u2019re just so wonderful. And everyone loves us because we\u2019re so stupid. So then you get into this other question, which I always find a little bit unintuitive, which is that the heavy use of our dollar worldwide makes the things we buy cheaper and the things we sell literal things more expensive. How does that work. So it\u2019s just not true. So this is just the thing that is believed that is just not true. You just hear it from the Trump administration. But it\u2019s not true. It\u2019s just not true. I think they conflate the stock market and houses and things like that, which are of investments with buying a car. Buying cars is cheaper here than in most countries, just because it\u2019s more competitive and stuff like that. They\u2019re not. They\u2019re not the same thing. A lot of even the economists you\u2019re talking to are saying that, I think are being a little incautious. So it\u2019s really a completely separate issue of what the exchange rate is. There have been times when the dollar is really cheap. Now it\u2019s really high. I mean, it\u2019s gone down, but it\u2019s still really high. The forces that affect exchange rates and prices are complex interaction of demand and supply and tastes and stuff like that. So let me even narrow this down a bit because I am where your position is more than where theirs is, and certainly where your position is on the idea that these things are complex. And one of my critiques of the Trump administration, just in general, role is they want to make complex problems into simple problems. They want to take complex forces that we don\u2019t even really fully know how to track and turn them into one thing that you can grab in your fist and squeeze. But the very specific claim being made repeatedly is that part of why America lost so much of its industrial base, so many of its manufacturing jobs. Is that because of all these financial flows, because we had so much money coming into American assets that our dollar became overvalued, we allowed other countries to keep their currency somewhat down China, and that this led to American exports becoming noncompetitive and the American consumer having an appetite for these newly cheap goods flooding into the country. And so very specifically, the argument is that dollar dominance has been something that has hollowed out our industrial capacity and manufacturing jobs. Do you buy that. It\u2019s ridiculous. I mean, so let me just step back a second. You\u2019re drilling in on this, but forgive me. There\u2019s a certain romanticizing of manufacturing that you hear that you used to hear about agriculture. I\u2019m quite a bit older than you, but back in the 19th century. You looked great, though. Back in the 1970s, you had the same ads where you see the person working on machine line or something. You saw them about farmers. They were constantly showing the farmers. We had to help the farmers. And you know what. Those jobs went away, even though we\u2019re the agricultural powerhouse in the world because everything became mechanized. That\u2019s a lot of what\u2019s going on in manufacturing. What we blame on China, a lot of it has to do with the way of the world. These jobs are going away. It doesn\u2019t matter if we don\u2019t trade with anyone. These jobs aren\u2019t going to exist. And that\u2019s just like a false sale that\u2019s being made about that. It\u2019d it\u2019s been great to have middle class jobs, but that kind of middle class job just isn\u2019t going to be there anymore. And to blame that on the fact that everybody\u2019s using the dollar all over the place, it\u2019s silly. So of course, what is the argument being made for that though. You\u2019re just saying it\u2019s ridiculous. And I\u2019m not even saying you\u2019re wrong, but I want to hear you make the argument you\u2019re arguing against. Why does Stephen Moran, the head of Donald Trump\u2019s council of Economic Advisors, why does he think the dollar strength over time was a contributor or a significant contributor to the hollowing out of our industrial base. He\u2019s a Harvard educated economist. He\u2019s your school. He is indeed. And he\u2019s not anything. He\u2019s very good. Well, first of all if you\u2019re in the Trump administration, you can have an opinion on many things, but you\u2019re not allowed to have an opinion on this. I mean, Trump has this as a religious belief and everyone\u2019s dancing around trying to provide a rationale for it. I would say this same phenomenon of we\u2019re buying more from China or Germany than they\u2019re buying from us is their money is coming in there, we\u2019re investing it. We\u2019re building, stuff, not necessarily factories, but our biotech and medicine and services. And we\u2019re paying less than we would otherwise. We\u2019re getting a lot of benefits from it. And a lot of this has to do with that. The incomes are just really low in China and India and many other places. And if you have openness to trade, you can argue about that. But it\u2019s not because of the dollar. It\u2019s because you have openness to trade. And if the dollar had been 30 percent cheaper for the past 40 years, would that have had, in your view, any effect on manufacturing employment at all. I mean, it might have had some effect. It would affect our prices, probably. It would have affect the prices we have over time. If you push the exchange rate and make it too cheap, you\u2019ll get inflation. Wages would go up faster and eventually it wouldn\u2019t be cheaper. I mean, so the argument you can use your exchange rate to manipulate by making things cheaper fails to see that if your things are cheaper, it\u2019ll eventually things will push up the price to make it equal. Workers can demand more. It\u2019ll still be competitive. The reason China stayed in there so long is keeping their currency cheaper than it would have been otherwise, their currency cheaper, mainly because they had a huge number of people earning zero out in the hinterlands. They were bringing 12 to 15 million people a year into their cities to work. And that supply kept wages down. It kept their prices down. We could be on a gold standard. There\u2019s no dollar to manipulate, and we would have lost our manufacturing through trade like that. And by the way, most of our manufacturing jobs have been lost to automation, not trade. Yeah this is the other side of this argument. I think people actually underrate. And I find the Trump people like JD Vance really shift between very, very quickly. Sometimes you\u2019ll hear JD Vance make arguments about immigration, where he says that because we\u2019ve had so much illegal immigration, we have not done as much automation and increased productivity as fast as we would have without it, which is fine. You can make that argument. I think in some ways, it\u2019s even true. But then on the other side, they\u2019ll make this argument about manufacturing jobs. I mean, I have to say, you\u2019re taking this in a direction that\u2019s so hard for me because I have trouble thinking about anything since you\u2019re trying so hard to think about something sensible when I\u2019m hearing polemics from them, they know what they\u2019re supposed to say, or finding arguments that can hold up for a second on immigration, by the way, I favor having a lot of legal immigration would be a very good idea. It\u2019s certainly the case that when you have illegal immigration, it holds down the wages of low income people. I mean, it\u2019s very hard to be competitive as a construction worker. Certain parts of construction work. Be a housekeeper. Be a child care. It\u2019s absolutely holds. If we didn\u2019t have that, the wages would be higher. I mean, that has an effect. But as far as motivating, motivating us to do automation and what industries is he thinking about exactly that. The immigration over the last few years has been in effect on that. I mean, I\u2019m sure he can find something, but I think it\u2019s a stretch. I think we treat in the American political conversation recently, we treat financial dominance as a fake form of power. A financialized economy is a soft, decadent economy, not the Chinese economy, which really builds things. But historically, if you control the money, you control the world. And there\u2019s real power in having all the financial arteries connect back to your pumping system. The fact that the dollar rules allows us to control the global financial system to a remarkable degree. It\u2019s not just the dollar rules. It\u2019s also that we\u2019re the military power. The combination of those two things gives us the ability in global negotiations for how should the IMF vote the International Monetary fund. How should the networks of transactions between countries go. Who should see the information. We get such privileged access to information, it just all goes through us and everyone hates it. Obviously the Russians and Chinese hate it, but the Europeans hate it. In fact, the Europeans forget the Chinese. They\u2019ve been trying to figure out a way to get away from this. Well, to pick an example, in 1956, when the UK still thought it might come back, remember they had ruled the world. The sun never set on the British Empire, and we were trying to put them down. And there was a crisis. And Egypt. The Suez Crisis. And we said, well, you\u2019re not doing what we want you to do. We\u2019re going to call in your loan. If we do that, I mean, exaggerating a bit, but it just it\u2019s incredible power if you control funding. Of course, sanctions is an obvious thing where we\u2019ve been using that in lieu of military power, which O.K, go for it. We can debate how well that\u2019s worked, but believe me, they don\u2019t like it 10 years ago, we were imposing sanctions on Iran. The Europeans didn\u2019t agree with us. And we said, O.K, you don\u2019t agree with us. Forget about using our banking system, which just destroys them. Everyone has to use the US banking system and you go on and on. So they don\u2019t like the power that it gives us in these subtle ways. And again, as an American, you don\u2019t see it. Oh, I\u2019m making the rules of the game. The game is great. I love everything about it. But if you\u2019re elsewhere, you feel it. So this goes back in a way to this idea that the dollar is something of a service we are selling to the rest of the world, and you\u2019re selling the rest of the world a service, a good. You got to keep your customers happy. Now we\u2019ve kept them happy. We tend to think about this in terms of controlling inflation here and being reliable. But one thing, going back before Donald Trump to the way we\u2019ve been using sanctions and other forms of financial power is increasingly we\u2019ve used it as non-economic leverage, as leverage to get people to do other things that we want them to do to sanction people. We don\u2019t like to give us information that maybe they don\u2019t want to give us. And something that\u2019s there in your book is a way that people were getting tired of this even before Donald Trump. So could you talk a bit about that piece. Like, where were we on the Eve of the Trump administration, and how are people feeling about the way we had changed the leverage that our financial system gives us. So Asia is a big part of the dollar bloc. They hold tons of reserves. That\u2019s trillions and trillions of dollars of reserves are lent to us by Asia. They\u2019re very important to us. China is at the center of that. China is the most important trading country, even more important than the United States for many countries. China had been using the dollar. The technocrats had been telling them for a long time, this is dumb. You shouldn\u2019t be using the dollar and the leaders were like, no, they don\u2019t want to change it. But when the Ukraine, the full scale invasion of Ukraine happened and they saw what we did to Russia, we didn\u2019t just sanction them, we took their central bank\u2019s money. And we\u2019re not calling it a default, but of course it is. We froze over $300 billion. Well, the Chinese, they\u2019re looking at that and they\u2019re also looking at the Russians having difficulty using visa, Mastercard, the credit system, everything using dollars. And they saw that. And can\u2019t change it overnight, but they\u2019ve been taking one step after another. And they\u2019ve also they used to peg their exchange rate and just basically try to make the renminbi that\u2019s their currency fixed against the dollar. Well that\u2019s gone. And that\u2019s also moving people away from holding dollar reserves as much because part of why you\u2019re holding them was to protect against China. Where I saw the biggest problem was not the other countries wanting to change things. Where I saw the biggest problem was inside ourselves Federal Reserve independence, which is the core of stabilizing the dollar and our inflation debt. The view that it\u2019s a free lunch. These, I think, ultimately were going to come to bite us anyway. Say a couple words about why Federal Reserve independence is important here. So O.K, I mentioned that it used to be as good as gold. You didn\u2019t care if the Federal Reserve was independent. You didn\u2019t like what the Federal Reserve was doing. And your Japan, you just take your money and you get gold. You\u2019re happy. Nowadays, there\u2019s nothing standing behind the dollar in its value. I mean, that\u2019s what you ultimately care about. That was the gold standard. What\u2019s standing behind the dollar is the Fed. That\u2019s our central bank is promising not to intentionally inflate too fast and actually to try to average around 2 percent I just have to mention I wrote the first paper on central bank independence 45 years ago when nobody had independent central banks, so I\u2019m biased, of thinking it\u2019s a great idea. It\u2019s a relatively modern invention and it has worked. If you get rid of it, there\u2019s always a temptation. Any president again, Trump is the world\u2019s history. The recent history is crudest president. But what he\u2019s saying he really wants the interest rate to be lower. That\u2019s what he wants. Believe me, Joe Biden wanted the interest rate to be lower. Obama did. And for your younger listeners, who probably most of them younger than me. Nixon was brutal about this. You can actually listen to the Watergate tapes, and he\u2019s cursing the head of the Fed. And that led to the biggest inflation we ever had. I mean, that was a real example of losing Federal Reserve independence. So I think this brings us then maybe to the Trump era. So you have these pressures building up. You have the US weaponizing its financial system in more and more explicit and aggressive ways. You have growing US debt when interest rates are pretty low. That felt not as big of a deal. But then post-pandemic inflation interest rates are a lot higher. So all of a sudden the amount we\u2019re going to be paying on our debt is quite a bit up. Then you have Trump and the MAGA movement returned to office in 2025. What has happened since then. If you were writing your book now, if it had a story, a chapter on the last three ish months, what would that chapter say. I mean, it\u2019s still unfolding, but a short thing is the things I was predicting are happening on steroids. I was predicting this to happen, I think. What is this to have risk high much higher risk of inflation undermining Federal Reserve independence, having decline of the dollar. I think that would have happened under a Harris presidency, but it wouldn\u2019t have happened in three months. It would have happened unfolded over a longer period. There were larger forces. Another way of putting it is Trump didn\u2019t have a strong hand as he thought he had. He thought, we were in just great shape. I can do anything. And we didn\u2019t. But I want to hold there for a second. As a person who appears to be trying to make the Trump administration\u2019s arguments on this podcast. He didn\u2019t think we were in great shape. This is their whole argument that we\u2019re in terrible shape that the dollar was in. He thought the dollar was in good shape. He thought the dollar was in good shape. But he thinks that dollar dominance is bad for us on some level they want to make. I find what they say about this. I understand why you say that steelmanning their arguments is impossible because on the one hand, they want, they want. They say the dollar should be weaker and it should also be the completely unquestioned reserve currency. The Moran, the Moran plant. They want it weaker and stronger at the same time. There\u2019s this thing called the mar-a-lago Accords, goes back to the Plaza Accord of the 1980s, trying to do a parallel. It actually tells China, O.K, we\u2019re going to give you 100 year bonds, and I guess we\u2019re going to pick the interest rate on them, and you\u2019re not going to be able to sell them to anyone, and you\u2019re going to love us. And by the way, that\u2019s what you have to do. We\u2019re going to do that to our friends, our enemies, to everyone. We want the dollar to be dominant. Dominant we want you to supplicate. I mean, needless to say, that\u2019s a recipe for blowing up the global financial system, not for having stability. I\u2019m just giving their contradictions. They say they want to be the reserve currency, but we\u2019re willing to be the reserve currency if we don\u2019t have to pay any interest. You can\u2019t do anything with the money and we\u2019re basically defaulting. It is a partial default. It is a spectacular tackler default. Well, if they do that. It\u2019s a default, which they haven\u2019t done most of these things yet. What they have done as best I can tell or as best I read it is say this their theory of the case is the US financial system and the US global military system are functionally global public goods that we provide at cost to the rest of the world. And you guys are all free riders and you\u2019re going to start paying us. You\u2019re going to start paying more for defense. One of the things Moran said, is it one way they could be in our good graces is just to cut a check to the Treasury, just make a donation to the US government for the privilege of using our defense system or our financial system. But what we are going to start doing is squeezing. We are going to say, and they have told me this directly, we have leverage. We have all this leverage that these idiots like Biden and Obama and Bush were not using. We\u2019ve been taken advantage of in deal after deal forever, and now we\u2019re going to using our leverage. We\u2019re going to start squeezing. And if you want to trade with us, if you want to be on the dollar and you better fucking be on the dollar, you are going to be giving us some kind of better deal than you\u2019re giving us now. Maybe you give us a check. Maybe you give us a better trade deal. Maybe you spend more on defense. Maybe it\u2019s something else. But you better come cut a deal and pay some kind of tribute that you\u2019re not currently paying. Whoever you are, right. Even if you\u2019re an island full of penguins and taking that case at its strongest right now, there\u2019s not a very good global alternative to the dollar. Nobody else is really a good option. But the thing that I see is that even if it worked in the short term, even if everybody comes to us and bends the knee because they don\u2019t want to be driven into a recession, Japan makes a deal with us. The UK makes a deal with US, France makes a deal with us. Brazil makes a deal with us. India makes a deal with us. The Philippines make a deal with us. Vietnam makes some deal with us that the signal we sent to everybody. Is it being on our system is incredibly dangerous for you. Because at any moment we might decide to squeeze your throat, and you\u2019re going to have to give us something. You don\u2019t even understand what it is right now. The terms of the deal are unclear and can change at any time under any administration. And what you create then, is incredible pressure to get the hell off of our system. We can\u2019t do it tomorrow. We can\u2019t do it even in a year. But you can start to do things over five or 10 years. That\u2019s what everybody\u2019s doing. That\u2019s what he\u2019s catalyzing. We\u2019re like I said, I thought this would happen over a long period and he\u2019s making it happen on steroids. So yeah, he\u2019s undermining the rule of law trade. By the way, free trade is one of the core things. Just think about a world where we have 100 percent tariffs and you can\u2019t get your stuff in or out. Well, you\u2019re not going to invest in the United States then. That turns out to be true with a 10 percent tariff to a lesser degree. The fact that our financial system is open. What about our University system. Sucking people in, helping integrate them into our culture, our openness to immigration, all of these things, are being undermined that are soft power. What about soft power. All these things are being undermined that are at the core of the dollar strength. Tell me the story. In terms of things that have affected the dollar and what we\u2019ve seen in the dollar\u2019s value and what we\u2019ve seen in other countries responding, what did they do that was consequential. How would you tell the story, as an economic historian, trying to track what has been what has been important in this period. There are a lot of little pieces that remain to be seen, but the tariffs were just the dumbest thing, the most incompetent thing. If he had just put on tariffs that were 10 percent on everyone, we\u2019d all get hysterical because it\u2019s bad for globalization. It would just not have been a big deal. It\u2019s a tax. Taxes are bad. It raises revenue. You could cut another tax. Economists have studied this for decades. We don\u2019t favor it. But it\u2019s not the end of the world. The problem is this. Let\u2019s make a deal. Totally unpredictable. I have a friend who has a little business importing Italian wines, and she doesn\u2019t have a lot of capital. She needs to charge people in advance. What price is she going to charge at the boat. Takes two months to come. She doesn\u2019t know what\u2019s going to happen. Look at bigger corporations. No one knows what\u2019s going on. Investments freezing up. It\u2019s the whole chaos, which I think you rightly described, as just something he plans. I mean, he wants to make himself everyone have to supplicate to him. And he very good at that. But it\u2019s the he can\u2019t do that to the markets, the market. The only reason and the only reason the markets haven\u2019t fallen more is this belief that other things. He\u2019s historically often been pragmatic. And when he screwed up. He declares that wasn\u2019t my opinion ever, and just changes his mind. And he seems to have a deeper seated view about this and the tariffs. And the way he\u2019s doing it is such a disaster because historically, the president is the person who\u2019s kept this in check. Actually, tariffs are very popular. My mother liked tariffs I would explain. I mean, she knew I was a PhD economist. I said yeah, but it makes the price of everything more expensive. She said. She said Yeah, but I want to protect jobs for American workers. And I think when Trump came in and I say this confidently, having talked to high level people around him, he thought everyone loved Harris. He looked at Bernie Sanders, which, by the way, was pretty similar, a lot nicer person. But when it comes to trade, he was saw himself as mimicking Bernie Sanders. I don\u2019t buy that. Oh the whole NAFTA thing. Oh my. He might not like NAFTA, but Bernie Sanders has never proposed a tariff system like this. Yeah, but what was he. Yeah what was he. Well, I don\u2019t know. The whole Trump has had his views on trade since Japan in the 80s. He didn\u2019t need Bernie Sanders to teach him that. If you go back to what he was saying about Japan, it\u2019s the same thing he\u2019s saying now. He\u2019s I\u2019ll back off of that because I don\u2019t want to go there. But it\u2019s popular. It\u2019s not unpopular. And historically Congress has pushed for tariffs. And I\u2019ve met Congress people and senators over there. They all wanted tariffs. They\u2019d ask me about tariffs. Can we have a tariff to protect our local firm. Wouldn\u2019t that be a good idea. We\u2019d have local jobs. So there are all these different Congress people. They have their own districts, their own pressures, their own donations. And the president stood in the way. And here we have a president leading the way. And so I never, that\u2019s the big story that\u2019s happened. And it isn\u2019t over yet. Again, if he sticks to this, we have a lot longer down to go something. You\u2019re saying that I just want to validate through my own reporting is I\u2019ve talked to a bunch of people who are significant market participants as maybe the way I\u2019ll put it, and they are definitely working off of the idea that in a year, the tariffs are going to be much lower than they are today, not a little bit lower, more stable, not the same. It\u2019s the stability. It\u2019s not just the lower, it\u2019s what are they. They can do business if they know what it is. But if they don\u2019t know what it\u2019s going to be and it depends on which side of bed Donald Trump wakes up on and he\u2019s that\u2019s the problem, the total unpredictability of it. So what has this done specifically to the dollar. People have been people know what is going on in the stock market. It has been very shaky. People can watch that for themselves. What has been the story if I\u2019m following the dollar\u2019s value. So I think it\u2019s a question of competency. People are saying if he\u2019s this bullheaded about this mistake, is this Trump many, many years later, older. Is he the same pragmatist that we thought was there before. What if he isn\u2019t. If you look closely at his tax bill, it\u2019s Trump 1 plus a lot of nutty ideas. And people thought he wouldn\u2019t really do them. Make Social Security, not tax tips, not tax changes in state and local. All these different things. Maybe serious the crypto. Maybe he\u2019s serious about it with if you deregulate too much as a problem, maybe he\u2019s not competent in the British used to have this thing with Liz Truss where she was the prime minister for a nanosecond. And she came out with this policy. She hadn\u2019t really sold, and everybody sold the pound. The interest rates went up. It collapsed. And they called it the moron premium because she just didn\u2019t understand. And people were talking in similar terms about what was going on here. I don\u2019t think it\u2019s just about the tariffs. The tariffs are terrible, but it\u2019s a deeper loss of trust in the governance, the institutions. But most people don\u2019t track just what is happening literally to the dollar\u2019s value, where people are putting their money in other currencies. You do. What has happened to the dollar\u2019s value, what has happened with other currencies? I mean, what are the signs that the world\u2019s relationship to the dollar, the dollar is changing. So the thing, which was just a incredible moment for everybody was when the dollar was going down in value, but long term interest rates were going up. There was a couple within a couple of days after his announcement. The 10 year interest rate, which most people don\u2019t think about, but it is the bellwether of global financial markets. It\u2019s the most important market. It\u2019s the deepest market every year. Car loan, your student loan, everything gets referenced off the 10 year rate, not what the Fed does. Everybody talks about the overnight rate the Fed sets. That\u2019s not it\u2019s the 10 year rate. Everyone looks at that. It\u2019s been going up. And suddenly it jumped half a percent within a very short period. And usually the dollar goes up. The interest rates are higher. I\u2019m going to put more of my money in the US, but no, the interest rate was going higher and the exchange rate was going down. That happens when people are selling, when whoever it was, the Chinese, everyone, there was people pulling out of dollar assets that we were it\u2019s sell America first. Was that is that dangerous. Did that reverse itself. It\u2019s stabilized for the moment because Trump has retreated partly. But I think we have what I thought might have taken 10 or 15 years to happen took place within a week, and we\u2019re never going back. So our exorbitant privilege, our lower borrowing, it\u2019s never going back to what it was. We may have lost 1\/4 percent a half a percent, just permanently higher. We can have a recession to bring them down. And when we get into that. But we haven\u2019t I don\u2019t think that bell will ever get unrung. Let\u2019s say in 2029. You have pick your candidate. It\u2019s President. Pete Buttigieg, it\u2019s President Moore, it\u2019s President Gretchen Whitmer. You don\u2019t think it all just reverts now because we said the 10 year rate is the bellwether? I didn\u2019t say the four year rate. It\u2019s the 10 year rate. And so what happens in the next election. What happens in the election after that. And it\u2019s possible. We\u2019ve shown we\u2019re willing to put a gun to everyone\u2019s head and Trump. Many of the things Trump does. Other presidents have thought. Go back to the Watergate tech gate tapes and Nixon, where he recorded all his conversations. He\u2019s very younger. He\u2019s very smart, but he\u2019s devious and he\u2019s throwing those sharp elbows. I think there\u2019s he says somewhere I don\u2019t give a damn about the Italian lira, or something when the Italians were having a problem. So they see they\u2019re looking peeking behind the curtain of what\u2019s going on. It\u2019s Trump\u2019s mind, and it\u2019s particularly unpredictable, but it\u2019s deeper in our DNA, the way social media is, the siloing of what everyone reads and watches and listens to. They\u2019re going to worry. It happened once. Why wouldn\u2019t it happen again. So, Yes, it\u2019s hard to understand what the plan is. And it\u2019s definitely I think we have lost trust in a way. We\u2019re never going to get it back. You say it\u2019s hard to understand what the plan is, but. But let me offer. This is not even a plan, but a frame. Somebody said to me recently that their model of Trump is that he loves to borrow from the future he always has, and his businesses and everything. And that if it works out for him, right. In the good scenario for Donald Trump, what you get are some short term wins. What you get is people without a good option like have to give you something. So you bring the tariff down, have to give you something so they get out of your crosshairs. But in the long term, what you\u2019ve done is spend down advantages. We had privileges, we had low borrowing costs we would have had. And maybe the bill comes due for some future president. Maybe it doesn\u2019t. By the way, he\u2019s making these bills come due pretty fast, but it\u2019s a kind of like pulling it from the future into the present. O.K I mean benefits, it would have been spread out over a long time. We\u2019ll get them all now and then deal with the crisis sooner. I\u2019m actually not someone who thinks Trump\u2019s 100 percent wrong about everything he says, but in this area, I\u2019m just I\u2019m working with you. I\u2019m struggling to think of what the logic would be. Let\u2019s go back to the economy is terrible. I mean, even the person in the low 20 percentile from the bottoms very well off even compared to probably, near the middle of the Italian income distribution or much less the world distribution. We have just taken flight during the 21st century. Europe the economy was the same size as the United States in the mid 90s, even into 2000. There were even and their stock market was worth the same. We have had a period where the world has just looked at us in awe, and to come to the end of that period and everything\u2019s terrible. I mean, it\u2019s very hard to understand and say there are things I need to fix. Income inequality, try to bring back, meaningful jobs and those are fine. But I think most of the solutions to those are domestic policy and things you could do differently. And not kill the goose. That\u2019s that lays the Golden eggs. Your book tracks this. There is this way. If you look at our major competitors during this period, you get a somewhat different view of the US than you get from the domestic political debate. So you track the rise of Japan and say some things that it had been a while since I was not really around for Japan as our big competitor. I was very young for that, and I had not really known that there was a period when their stock market was valued more highly than our stock market. I mean, that seems crazy today. Their stock market was worth more. Actually their housing stock was worth more than Japan\u2019s, about the size of California and its housing. It\u2019s hard to get your head wrapped around this, but its housing stock was worth more than the United States. At one point. They just seemed like the coming thing. And that is that\u2019s what everybody thought. I don\u2019t think people anticipated what problems it would have. And I think had they not made some blunders, which we were lucky they did. And we through some sharp elbows at Japan, I mean that\u2019s a case and that maybe that\u2019s why the mar-a-lago accord hearkens back to when we beat up on Japan. We beat up on them. They gave into it. They made a mistake. They appreciated their currency buy a lot more than they intended to. And I\u2019d say that\u2019s one of the things where I changed my mind over time about just how bad that was. I was the view. Well they had their own internal problems, their crisis. They had a two decade growth crisis starting in the early 90s. And that had happened later. It happened six or seven years later. And I later came around to that\u2019s wrong. The view that, for example, the Chinese think that was a disaster. Japan gave in on that. They will never give in on it, give in on it. And I always thought the Chinese were wrong. Others and I came around to well, we set in motion changes that their society was not ready to handle. They didn\u2019t have a monetary framework, they didn\u2019t have a regulatory framework. And for a while they were doing great. But then but then they weren\u2019t. And so it was a surprise how much I felt I was in Japan as a visiting scholar at the Bank of Japan in the early 1990s. I didn\u2019t know what was going on. None of my thesis friends who were economists, nobody knew what was going on. I\u2019d actually invest. I left the Federal Reserve and invested my small pension into Japanese stock. Seemed like a great idea. And if I had sold, then instead of later. So you can go back to other occasions where we were surprised when Europe, nobody knew it would fall as short as it did nobody in the 2000. This part I was more around for in the 2000. There are all these books about the European future. If you just put out trend lines. I mean, the EU as an economic zone was bigger than the United States and they have fallen way behind us. We\u2019ve had a little luck. So I like to quote this chess player I knew, bent Larsen, one of the great chess players. I played him, I knew him, and he had this saying, I heard him, I was being interviewed and he was asked, well, would you rather be good or lucky. And he thought for a second. I\u2019d rather be good and lucky. And Americans know they\u2019ve been good, but they don\u2019t know they\u2019ve been lucky. And fast forward. I mean, our luck may have run out here, that we\u2019ve had a lot of good turns where the other team was making mistakes and we were \u2014 I don\u2019t even want to call it an own goal. like in those shootouts in soccer. This isn\u2019t being unlucky. This is being not good incompetent. Yeah Yeah. No, but we\u2019re unlucky in the policies that the administration. I\u2019m saying that\u2019s not being unlucky. We chose this. It\u2019s being not good. Well it\u2019s true because, I mean, I don\u2019t blame everything on Donald Trump. I blame a lot on us. What would we have done otherwise. I mean, I know you\u2019ve written a wonderful book about a brighter visions for the future, but our political system is stuck on a lot of bad ideas on both sides. And this is us. It isn\u2019t just one person. Everything would just perfect if we didn\u2019t have this one person. It\u2019s much. It\u2019s much deeper in our beliefs about ourselves, where we are a certain rot in our system. I mean, maybe that\u2019s too strong to draw the analogy with Rome, but we can turn it around. We absolutely can. I hope we have great government that does. But we need to turn ourselves around in order to do that. So this gets to something I have been worrying about. You\u2019ve been Warning that America is dead. Situation is unsustainable for many, many years. We\u2019ve gone through periods of how controversial that was. I think more recently, kind of everybody\u2019s been getting more worried about the debt. Interest rates are up are total debt load is very high. Our deficits are quite high. Now you have this huge tax cut coming so you can keep all the tariffs and you can raise some money. But if the tariffs are going to go down. They\u2019re going to be raising less money through them. They don\u2019t at any level pay for the tax cut that is currently being planned. So you could very easily be looking at deficits of like 5 percent to 7 percent And a world where they\u2019re causing financial conflagrations let\u2019s call it there\u2019s pressure on the dollar. There is a trade war with China where certainly one of the weapons China has is a sell off in US treasuries, which could put pressure on that market. I\u2019m not predicting a Trump induced financial crisis, but it doesn\u2019t seem impossible to me that those things could combine in a very dangerous way. Not at all, and I think there\u2019s going I think stepping back because I think this is a fundamental point. So there was this idea, particularly among progressives, but also on the right, that interest rates were just going to keep diving down. So it was never going to be an issue. But actually the difference between having 60 percent debt, which is where we were about 2005 of your income and 121 percent today. It\u2019s a big difference in what you can do. Just if you think stimulus is a good thing, if the debt fairy came along and took the 121 percent down to 60 percent you could knock yourself out doing stimulus. The next in coming years. And Donald Trump is going to hit this because the debt has gotten high. Interest rates have normalized. I think if you look at a long history, you never would have thought they would have stayed so low forever. The dollar\u2019s losing some of its his exorbitant privilege. He\u2019s going to throw around money and it\u2019s going to come to bite us. It\u2019s not the end of the world. It\u2019s a little bit hard to predict this man\u2019s mind, but there are two ways. It can end. I think for the United States defaults, not one of them. We don\u2019t need to do that. One would be inflation. I think the chances we get another inflation similar to the Biden era, one or worse, are very high. Very high. 75 percent in the next. How long. The next 5 to seven years is what I say in my book. I\u2019ve got to make that a little shorter. Thanks to the next three to four years, you would say a better than even chance. Yeah, better than even you have inflation at 8 percent or above. Yeah, that\u2019s absolutely what I\u2019m saying. Because that\u2019s where this is going. But you got to take out Powell. You\u2019re saying the inflation option requires that. Because that is a world in which Trump could appoint somebody who would inflate away our debt by printing money to devalue the debt. He\u2019d need to commandeer the whole system because he only controls one position and the others could vote against it. So it\u2019s pretty stable. There\u2019s an incredible culture at the Fed. The others at the federals are the Federal Reserve Board, the Federal Reserve Board, and the White. But that\u2019s the worry you\u2019re getting at here. The worry I\u2019m getting is that finds a way to corrupt the Federal Reserve. And he could. The idea that he couldn\u2019t. Of course he could, if he needs to. I think a lot of people don\u2019t appreciate that the Fed\u2019s independence is not in the Constitution. Powell he\u2019s the head of the Federal Reserve. It\u2019s not in the Constitution. If with team Congress and Trump acting together, they could, bring it back into the Treasury. So you\u2019d have to do that. And the Trump administration is talking about a lawsuit in front of trying to bring it up to the Supreme Court, basically saying these independent agencies where Trump can\u2019t easily fire the head of them, it\u2019s unconstitutional. So they could win that lawsuit and then they could borrow however they want. No, absolutely. Powell\u2019s term will end at some point. Yeah I mean, I don\u2019t think that would be enough. I think the. Yeah but depending on who they replace, depending on who they replace him with. But they\u2019re not going to reappoint Powell. They\u2019re not going to reappoint Powell. He would not want to be reappointed. Would be my guess. But they\u2019re not going to reappoint him. But it\u2019s not just that. It\u2019s the whole construct. It\u2019s relatively new. It\u2019s not ancient that we\u2019ve had that it is a creature of Congress. It\u2019s not in the Constitution. It could get knocked out very quickly. But to have the inflation option requires that there is another card he can play, and that\u2019s basically ramming debt down people\u2019s throats. The Japanese have done that. That\u2019s why Japan hasn\u2019t had. Japan has debt twice our size, but they\u2019ve used a, to use a jargon word financial repression, pushing debt, the pension funds, the insurance companies, the banks. Everybody has to hold government debt. And they\u2019ve avoided a financial crisis. But there\u2019s no not enough money to lend around to entrepreneurs, innovators. They\u2019ve gone from being richer than us at the beginning of this to being below the UK, France, Germany. They\u2019ve gone from their roughly 60 percent of our income from having been higher. And it\u2019s partly this financial repression. So he has a couple of cards he can play. None of them are good. So we\u2019ve talked about this history in the past couple of decades where you had very dominant seeming countries or countries that seemed on a very bright trajectory, really running into turbulence. And how they look now is very different from how they looked in Europe\u2019s case two decades ago and Japan\u2019s case four decades ago. And it sounds a bit like you\u2019re saying there\u2019s a very good shot that America could enter one of those periods itself, that our sense that our line only goes up is not. That\u2019s not preordained. We were good and we were lucky. And now we might not be good anymore. And we might not be lucky anymore. And if you\u2019re not good and not lucky for 10 or 15 years, you can really lose a lot of altitude. You can lose a lot of altitude. And I think people don\u2019t understand. I want to come back to this, is that if you just went back 20 years, nobody thought the dollar would control so much of the world as it does. And I want to mention that because it\u2019s not so crazy that things would converge back to that. If they did, we\u2019d pay a higher interest rate on our debt. Not as much as if they didn\u2019t use the dollar at all. I maybe we\u2019d still be first among equals. It will affect our national security. Our ability to use sanctions is a heck of a lot less. If you\u2019re visa and you\u2019re the only credit card you can tell people do this or you can\u2019t use visa. But if there\u2019s American Express and Mastercard. You can\u2019t it\u2019ll affect our information gathering, our intelligence. Modern intelligence is mostly cyber these days. It\u2019s not the James Bond, but somebody sitting with a laptop and a heck of a lot of that was our financial information. And if our national security is weaker, we have to spend more money in other ways. I mean, we\u2019ll regret it, but it\u2019s not an overnight. We\u2019re talking about an inflation crisis. I think this loss of the dollar\u2019s magnitude, the altitude comes down from the altitude. It is it\u2019s a slower burn. We will feel it when that pandemic comes. When that crisis comes, people love us. They don\u2019t love us as much. We try to borrow typically two or three times what everyone else is borrowing. And suddenly, the interest rates are moving up faster than they do now. So if over the next 10 ish years, people are just. They\u2019ve lost trust in the dollar. What do they go to when you think of what is the likeliest scenario 10 or 15 years from now in a bad scenario for the dollar. Is it that China has built financial dominance. Is it that many different currencies are used in slightly higher proportions than now, the multipolar scenario that people talk about. Are we all in Bitcoin. We\u2019re not all going to be on Bitcoin. The multipolar Saturday we lose market share. Think of there\u2019s a natural network externality that makes Amazon giant that made Facebook giant that makes Google search giant. The same thing is true in currency. And a lot of economists have these theories. Well, therefore the dollar is always going to be there. But we live in a political world. It\u2019s not in China\u2019s, Russia\u2019s it\u2019s not in Europe\u2019s interests to have us control everything. They are willing to pay a price in order to not have the dollar have as much power, and they were offering them a golden opportunity. I mean, China is already courting Africa, Asia, South Asia, especially Latin America. Europe is remilitarizing. They\u2019re realizing that, Wow, this is a potential moment for the euro. So I think we lose footprint. I do think Bitcoin is in the mix, the CyberGuy because part of the dollar\u2019s footprint is the non-tax paying underground economy is very much dollarized economy. That\u2019s nobody knows for sure how big that is. My in my work, my estimates 20 percent and 20 percent of the global economy is not paying a lot of it\u2019s not paying taxes. And crypto is very useful there. It\u2019s been a real alternative. Aside from being electronic, you can do things more conveniently. It\u2019s more difficult to trace. So crypto is going to take a part of our market share. It\u2019s doing it. The renminbi is going to take up part of our market share, not in New York but somewhere. And the euro is going to take some of our market share. And we\u2019ll have settled to where we thought we were going to be 20 years ago before we had this period. I just want to come back to something you said about military. Actually, I think it\u2019s important. Basically, Yes. I think a good system would be if everyone had to write a check to us and didn\u2019t build up their military. The trouble is, and I think presidents have faced this over the years, when they do that and it starts to get to be a big check, they want something for it. At the end of the day, we want to control things. We didn\u2019t really want NATO to be calling the shots. And when there are no NATO missions, the Uc is controlling them. We are the boss. We tell people what to do. We want it that way. So you wish they would just pay you a check, but then you find out it\u2019s golden handcuffs at the end of the day. Of course, if they have their own powerful military, that\u2019s a whole other story when we disagree with them. So it sounds a bit like one thing you\u2019re saying is that it has been a view of the Trump administration, that everybody is free riding on the financial military services we provide to the world, and we might persuade them of that and persuade them that they should provide more financial military services to themselves, or at least find another contractor or seller. And we might miss that when it is diminished from where it\u2019s been. Yeah I mean, another way of putting it is everyone wishes they were US. I mean, this is the great power turning on itself and pulling into retreat. And I think we\u2019re going to wish we hadn\u2019t done it. I think the comedian Dave Chappelle said it very well. I want to wear Nikes. I don\u2019t want to make Nike\u2019s, and it\u2019s going to be a very different world. Always our final question what are three books you\u2019d recommend to the audience. O.K, well, I have a few books to recommend, but I have to start out with my wife\u2019s book, Muppets in Moscow, which I\u2019ve given you as a present about the making of Sesame Street in the 1990s, which she oversaw hundreds of artists, the making of it in Russia, making of it in Russia in original version in Russian, overseeing directors, puppeteers, writers and such. And it\u2019s in a period of tremendous instability. Another book that I think has I just love and people have seen the series but haven\u2019t read the book. It\u2019s \u201cThe Queen\u2019s Gambit\u201d by Walter Tevis. It is one of the most perfect books ever written. Kind of asked the question, what if Bobby Fischer, maybe the greatest chess player of all time, was a woman. How would it have played out. And the Netflix series was just majestical and another book would be Walter Isaacson\u2019s Ben Franklin. I just hadn\u2019t known everything about him, and he was the best chess player in the colonies, by the way, which I was a professional chess player and he printed money. He was very technical. He figured it out. But you know what an amazing person. And I think an amazing book. Ken Rogoff, Thank you very much. Thank you.<\/p>\n<\/div>\n\n","protected":false},"excerpt":{"rendered":"
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