For decades now, America has dominated

the global financial system. Our

currency is the currency that

international trade runs on. Our

financial plumbing is a plumbing that

basically everybody to some degree or

another uses. This has been called our

quote exorbitant privilege. Because of

it, our borrowing costs are lower.

Because of it, we know things about the

global economy nobody else knows, 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 challenges. Japan in the

80s, the EU 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, uh, sir,

we like you very much, but we're going

to no longer adhere to being in the

reserve currency, uh, we're not going

to, uh, salute the dollar anymore. I'll

say, that's okay. They've 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're going to

pay a 100% 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're going

to pay 100% tariff. Ken Rogoff is the

former chief economist at the

International Monetary Fund. He's a

professor of economics at Harvard, and

he has a new book coming out, very

welltimed. It drops on May 6th, which 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 admination has

taken the stress that system was under

and begun to put true cracks in it. As

always, my email as Kleinshow

Times.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 the most important

thing is the English analogy. It's

something everyone understands. Partly

they know what it is and partly they

like it. It's something they know and

trust. If there are I think 150 plus

currencies in the world and just imagine

two people trying to communicate with

two currencies they never saw and let's

just deal in dollars. So that that's a

big part of it. It's like a common

language. How did we build that trust?

Part of how we built built the trust

early was the dollar was 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 to

being based on trust in the United

States and how we would manage the

dollar. Well, we did, but we didn't tell

anyone we were going to do that. And

they weren't very happy about it. I

mean, they were holding dollars because

they were good as gold. And they

literally met gold. And when uh

President Nixon in the early

1971

decided, I don't want to do that

anymore. It 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

dollarbacked assets. And one things

other countries don't have is the depth

of the assets we have to sell. And so

it's not just that the the dollar and

dollar backed assets like treasuries are

I think though I like the way you put it

are basically the lingua frana of

international finance. It's also there's

enough of them to go around. So there's

just not as much liquidity in, you know,

German currency. Liquidity is an

important word and it means if you want

to sell it, do you have to take a big

discount? You know that if you want to

sell your house, you can sell it, but

it's not necessarily something you can

sell quickly. So you you're uh I don't

know from India and you bought a

treasury bill, you can sell it to anyone

in the world. They know what it is.

There's a price usually not a very big

discount from whatever the market price

is. their currency is the rupia. If you

wanted to sell your rupia abroad, you'd

you'd pay a big discount. So, deep

financial markets, rule of law, there

are other things like open to trade

because you can get your money in and

out. We've had a very open uh 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's there's

sort of a trade-off, but we pay

nevertheless, we pay a lower interest

rate than we would if we were another

country trying to do the same thing. So,

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's free money to us. So when

they literally are buying currency which

are like the dollar bills in your pocket

that doesn't pay any interest and in a

way they're making an interest free loan

to us and there's the different

estimates of how much is abroad but it's

at least a trillion dollars is held

abroad interest free loan. much more

important is that when they make loans

to us in dollars and that's the treasury

could even be your mortgage getting

repurchase somehow because it's in

dollars historically it's 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 sort of the range

of the estimates. That doesn't mean that

we're paying a lower rate than Germany

because we borrow so much more than

Germany. Be very careful about that. But

given how much we're borrowing, think

think of half a percent to a percent.

Now I said, what does that matter? And

when you owe 36 going on 37 trillion,

that's real money uh each percent. But

it's not just the government. It's your

mortgage, your car loan. It's it pushes

down interest rates all over those

things like your mortgage and their your

car loan. They can get repackaged in

some complicated way, pushed out to

Germany, to Japan, to someone else. So,

it's affecting everything. So, tell me

about some of the other benefits. I

mean, the the dollar dominance that gets

called the exorbitant privilege. Your

book is so interesting to read in this

moment because it comes from the

perspective that this is this huge

privilege America has that the other

country that the other countries in the

world are growing tired of and the

question is can we maintain it and that

comes out at this moment when you have

an administration that is more or less

claiming it to be a burden that the

other countries in the world are free

riding of uh off of and that we need to

uh 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 Jiscar Dist and I literally pardon my

French not saying his name correctly uh

who uh uh didn't like the idea that the

US seemed to pay a lower interest rate.

He didn't like the idea that we seem to

be able to borrow so much uh in a

crisis. and he didn't 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

it combined a lot of things. It's it's

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 us

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't suddenly going

up. So, they look at it and when these

crises happen, they're trying. Well,

we're 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. Uh

that's that's really the risk. So that

that's 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's like the rest of the world are

dope dealers to America that that it's

made us addicted to debt because we can

do this. Is 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'll sometimes hear

from the more austerity focused side of

the debate, been uh a kind of ne

negative because it allowed us to be in

their view irresponsible. I mean, it's

purely good for us. But where you have

to be careful, for example, in the early

2000s, we made it a little too easy to

come in here with your money and uh

invest it in ways that the government

was backing. We deregulated too fast. It

was sucking money in. So, we didn't just

have the exorbitant privilege. We had,

you know, you come here and not a lot of

regulation. It's really cool. And that

blew up into the financial crisis. So

you want to be careful between everyone

loves us because we're just so wonderful

and everyone loves us because we're 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's just not true.

That is So this is just the thing that

is believed. That is just not true. You

just hear it from the Trump

administration, but it's not true. Is

just not true. I think they conflate the

stock market and houses and things like

that, which are sort of

investments with buying a car. Buying

cars is cheaper here than in most

countries. Uh just because it's more

competitive and stuff like that. They're

not they're not the same thing. A lot of

even the economists you're talking to

are saying that I think are being a

little uncautious. So it's really a

completely separate issue of what the

exchange rate is. Uh there have been

times when the dollar is really cheap.

Right now it's really high. I mean it's

gone down but it's still really high.

you know there the forces that uh affect

exchange rates and prices are complex

interaction of demand and supply and

tastes and stuff like that. So so let me

even narrow this down a bit because I I

I am where your position is more than

where 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 is they want to make

complex problems into simple problems.

They want to take complex forces that we

don't 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 currencies somewhat down

like China and that this led to American

experts becoming non-competitive 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's ridiculous I

mean so let me let me just step back a

second you're drill ing in on this, but

forgive me. There's a certain

romanticizing of manufacturing that you

hear that you used to hear about

agriculture. I'm quite a bit older than

you, but back in the 1970s, great

though. Back in the 1970s, you had the

same ads where you see the person

working on the, you know, uh, 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're the agricultural

powerhouse in the world because

everything became mechanized, that's a

lot of what's going on in manufacturing.

What we blame on China, a lot of it has

just has to do with the way of the

world. These jobs are going away. It

doesn't matter if we don't trade with

anyone. These jobs aren't going to

exist. And that's just like a false sale

that's being made about that. Uh it'd be

it's be great to have middle class jobs,

but that kind of middle class job just

isn't going to be there anymore. And to

blame that on the fact that everybody's

using the dollar all over the place,

it's it's silly. So what is the argument

being made for that though?

You you're just saying it's ridiculous.

And I'm not even saying you're wrong,

but I want to hear you make the argument

you're arguing against. Why does Steven

Moran, the head of Donald Trump's

Council of Economic Adviserss, why does

he think the dollar strength over time

was a contributor, a significant

contributor to the hollowing out of our

industrial base?

He's a Harvard educated economist. Your

school? He is indeed. Uh, and he's not

anything. He's very good. Um, well,

first of all, if you're in the Trump

administration, you can have an opinion

on many things, but you're not allowed

to have an opinion on this. I mean,

Trump has this as a religious belief and

everyone's dancing around trying to

provide a rationale for it. I would say

this same phenomenon of uh we're uh

buying more from China or Germany than

they're buying from us is their money is

coming in. They're we're bu investing

it. We're building, you know, stuff, not

necessarily factories, but our uh

biotech and medicine and services and

we're paying less, you know, than we

would otherwise. We're getting a lot of

benefits from it. And you know, 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's it's not because of the

dollar. It's because you have openness

to trade. If the dollar had been 30%

cheaper for the past 40 years, would

that have had in your view any effect on

manufacturing uh employment at all?

I I mean uh it might have had some

effect. It would affect our prices

probably. Uh you know, it would have

affect the prices we have over time. If

you push the exchange rate and make it

too cheap, you'll get inflation, wages

would go up faster and eventually it

wouldn't 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'll eventually things will

push up the price to make it equal.

Workers can demand more. It'll still be

competitive. The reason China stayed in

there so long is keeping their currency

cheaper than it would have been

otherwise. They kept 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's no

dollar to manipulate. And we would have

lost our manufacturing uh through trade

like that. And 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

that Trump people like JD Vance really

shift between very very quickly.

Sometimes you'll hear JD Vance make

arguments about immigration where he

says that because we've had so much

illegal immigration. We have not done as

much automation and increase

productivity as fast as we would have

without it. Which is fine. You can make

that argument. I think in some ways it's

even true. But then on the other side

make this argument about manufacturing

jobs. I mean I have to say you're taking

this in a direction that's so hard for

me because I have trouble thinking about

anything sense. you're trying so hard to

think about something sensible when I'm

hearing pmics from them like they know

what they're supposed to say and are

finding arguments that you know can hold

hold up for a second on on immigration

by the way uh I favor having a lot of

legal immigration would be a very good

idea it's certainly the case that when

you have uh uh illegal immigration it

holds down the wages of lowincome people

I mean there's s it's very hard to be

competitive as a a construction worker,

certain parts of construction work, uh

be a housekeeper, you know, be a a child

care, it's absolutely holds down. If we

didn't have that, the wages would be

higher. I mean, that has an effect. But

as far as motivate motivating us to do

automation and what industries is he

thinking about exactly that uh you know,

the the immigration of the last few

years has been an effect on that.

I I mean I'm sure he can find something,

but I think it's a stretch. I think we

treat in the American political

conversation recently. We treat

financial dominance as a fake form of

power, right? A financialized economy is

a soft, decadent economy, not like the

the Chinese economy, which really builds

things. But historically, if you control

the money, you control the world. And

there's real power in having, you know,

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's not just the

dollar rules, it's also that we're 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 uh 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've been trying to figure

out a way to get away from this. Well,

to pick an example, in uh 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

uh we were trying to put them down. And

there was a crisis in Egypt, the Suez

crisis. And we said, "Well, you're not

doing what you we want you to do. We're

going to call in your loan." you know we

do that I'm exa you know sort of

exaggerating a bit but it just it's

incredible power if you control funding

of course sanctions is an obvious thing

where we've been using that in lie of

military power which okay go for it uh

we can debate how well that's worked but

believe me they don't like it 10 years

ago we were imposing sanctions on Iran

the Europeans didn't agree with us and

we said okay you don't agree with us

forget said about using our banking

system which just destroys them. They

everyone has to use the US banking

system and you go on and on. So they

don't like the power that it gives us in

these subtle ways and again as an

American you don't see it. Oh I'm making

the rules of the game. The game is

great. I love everything about it. But

if you're 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 if

you're selling the rest of the world a

service, a good, you got to keep your

customers happy. Now, we've kept them

happy. We 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've been using

sanctions and and other forms of

financial power is increasingly we've

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't like to give us

information that that maybe they don't

want to give us and something that's

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 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 uh Asia is a big part of the

dollar block. They hold tons of

reserves. That's they you know trillions

and trillions of dollars of reserves are

lent to us by Asia. They're very

important to us. China is at the center

of that. China's the most important

trading country, even more important

than the United States for many

countries. Uh, China had been using the

dollar. The technocrats had been telling

them for a long time, this is dumb. You

shouldn't be using the dollar. And the

leaders were like, "No, they don't want

to change it." But when the Ukraine in

the full-scale invasion of Ukraine

happened and they saw what we did to

Russia, we didn't just sanction them. We

took their central banks money and we're

not calling it a default, but of course

it is. We froze over $300 billion. Well,

the Chinese, they're looking at that.

And they're also looking at the Russians

having difficulty using Visa,

Mastercard, the credit system,

everything using dollars. And they saw

that and they can't you can't change it

overnight. But they've been taking one

step after another. And they've also

they used to peg their exchange rate and

just basically try to make the renimi

that's their currency fixed against the

dollar. Well, that's gone. And that's

also moving people away from holding

dollar reserves as much because part of

why you're 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. Uh debt, the

view that it's a free lunch. uh 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, okay, I mentioned

that it used to be as good as gold. You

didn't care if the Federal Reserve was

independent. You didn't like the what

the Federal Reserve was doing and your

uh Japan. You just take your money and

you get gold. You're happy. Uh nowadays,

uh there's nothing standing behind the

dollar in its value. I mean, that's what

you ultimately care about. That was the

gold standard. What's standing behind

the dollar is the Fed, that's our

central bank, is promising not to

intentionally inflate too fast and

actually to try to average around 2%. 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'm biased of thinking

it's a great idea. It's a relatively

modern invention and uh it has worked.

If you if you get rid of it, there's

always a temptation. Any president,

again, Trump is the

world's the recent history's crudest

president. But what he's saying, he

really wants the interest rate to be

lower. That's 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. Uh you can actually listen to the

Watergate tapes and he's 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 in 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 um when interest rates

are pretty low. That felt like not as

big of a deal. But then, you know, post

pandemic inflation, interest rates are a

lot higher. So, all of a sudden, the

amount we're going to be paying on our

debt is is is quite a bit up. Then you

have Trump and and the MAGA movement

return to to office in in 2025.

What has happened since then? If 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's still unfolding, but a short

thing is the things I was predicting are

happening on steroids. I was predicting

this to happen. I think this to have the

the have risk high much higher risk of

inflation undermining Federal Reserve

independence having a decline of the

dollar. I think that would have happened

under a Harris presidency but it

wouldn't have happened in 3 months. It

would have happened you know unfolded

over a longer period. There were larger

forces. Another way of putting it is

Trump didn't have as strong a hand as he

thought he had. He thought, you know, we

were in just great shape. I can do

anything. And and we and and we didn't.

But I want to hold I want to hold there

for a second. Uh as a person who appears

to be trying to make the Trump

administration's arguments on this

podcast, uh he didn't think we were in

great shape. This is their whole

argument that we're in terrible shape.

He thought the dollar was in he he

thought the dollar was in good shape. He

he thought the dollar was in good shape,

but but he thinks that dollar dominance

is bad for us on some they want to make

I find what they say about this. I

understand why you say that steel

manning their arguments is sort of

impossible because on the one hand well

they want to they say the dollar should

be weaker and it should also be the

completely unquestioned reserve

currency. Yeah. The the manoran plan

they want weaker and stronger at the

same time. There's this thing called the

Mara Lago accords uh goes back to the

Plaza Accord of the 1980s trying to do a

parallel. It actually tells China,

"Okay, we're going to give you

hundred-year bonds, and I guess we're

going to pick the interest rate on them,

and you're not going to be able to sell

them to anyone, and you're going to love

us. And by the way, that's what you have

to do. We're going to do that to our

friends, our enemies, to everyone. We

want the dollar to be dominate dominant.

We want you to supplicate." I mean,

needless to say, that's a recipe for

blowing up the global financial system,

not for having stability. I'm just

giving their contradictions. They say

they want to be the reserve currency,

but we're willing to be the reserve

currency if we don't have to pay any

interest. You can't do anything with the

money and we're basically defaulting. It

is a partial default. It is a

spectacular default. Well, I if they do

that, it's a it's a default which they

haven't they haven't done most of these

things yet. What they have done, as best

I can tell, or as best I read it, is 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 writers and you're

going to start paying us. You're going

to start paying more for defense. One of

the things Moran said is that one way

they could be in our good graces is just

to cut a check to the treasury. just

like make a donation to the US

government for the privilege of using

our 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've been

taken advantage of in deal after deal

forever. And now we're going to start

using our leverage. We're going to start

squeezing. And if you want to trade with

us, if you want to be on the dollar, and

you better be on the dollar, you

are going to be uh giving us some kind

of better deal than you're 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's

something else, but you better come cut

a deal and pay some kind of tribute that

you're not currently paying, whoever you

are, right? Even if you're an island

full of penguins.

And taking that case at its

strongest right now, there's not a very

good global alternative to the dollar.

Nobody else is really a good option. But

the thing that that that I see is that

even if it worked in the short term,

even if everybody comes to us and bends

a knee because they don't want to be

driven into a recession, you know, 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've sent

to

everybody is that being on our system is

incredibly dangerous for you. because at

any moment we might decide to squeeze

your throat and you're gonna have to

give us something. You don't even

understand what it is right now. The the

terms of the deal are 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't do it

tomorrow. You can't do even in a year,

but you can start to do things over five

or 10 years. That's what everybody's

doing. That's what he's catalyzing.

We're, like I said, I thought this would

happen over a long period and he's

making it happen on steroids. So, yeah,

he's uh undermining the rule of law. Uh

trade, by the way, free trade is one of

the core things. Just think about a

world where we have 100% tariffs and you

can't get your stuff in or out. Well,

you're not going to invest in the United

States, then that turns out to be true

with a 10% tariff to a lesser degree.

the fact our financial systems open.

What about our university system? You

know, sucking people in, helping

integrate them into our culture, our

openness to immigration, all of these

things, you know, are being undermined

that are 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,

right? In terms of things that have

affected the dollar and what we've seen

in the dollar's value and what we've

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 was been

what has been important in this period?

There are a lot of little pieces that

remain to be seen. But the the tariffs

were just the dumbest thing, the most

incompetent thing. If he had just put on

tariffs that were 10% on everyone, we'd

all get hysterical because it's bad for

globalization. It would just not have

been a big deal. It's a tax. Taxes are

bad. It raises revenue. You could cut

another tax. Economists have studied

this for

decades. We don't favor it, but it's not

the end of the world. The problem is

this. Let's make a deal. Totally

unpredictable. I have a a friend who has

a little business importing Italian

wines and she doesn't have a lot of

capital. She needs to charge people in

advance. What price is she going to

charge them? The boat takes 2 months to

come. She doesn't know what's going to

happen. Look at bigger corporations. No

one knows what's going on. Investments

freezing up. Uh it's the whole chaos

which I think you rightly described, you

know, is just something he plans. I mean

he wants to make himself everyone have

to supplicate to him and he's very good

at that but it's the he can't do that to

the markets the market the only reason

and the only reason the markets haven't

fallen more is this belief

that other things he's historically

often been pragmatic and when he screwed

up he declares you know that wasn't my

opinion ever and just changes his

and he seems to have a deeper seated

view about this and the tariffs and the

way he's doing it is such a disaster

because historically the president is

the person who's 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'd

said yeah but it you know it makes the

price of everything more expensive.

said, she'd say, "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

highlevel people around him, uh, he

thought everyone loved Harris. He looked

at Bernie Sanders, which by the way was

pretty similar, a lot nicer person, you

know, but when it comes to trade, it's

he was saw himself as mimicking Bernie

Sanders. I don't buy that. Oh, the whole

NAFTA thing. all my all. 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 I don't know. Okay. The the the

whole

Trump has had his views on trade since

Japan in the 80s. He didn't need Bernie

Sanders to teach him that. If you go

back to what he was saying about Japan,

it's the same thing he's saying now.

He's it I I'll I'll back off of that uh

because I don't want to go there, but um

it's popular. It's not unpopular. And

historically, Congress has pushed for

tariffs. And I've met Congress people

and senators over there. They all wanted

tariffs. They'd ask me about tariffs.

Can we have a tariff to protect our

local firm? Wouldn't that be a good

idea? We'd 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 I

so I I never you know that that's the

big story that's happened and it isn't

over yet. Again, if he sticks to this,

we have a lot longer down to go.

Something you're saying that that I just

want to uh validate through my own

reporting is I've talked to a bunch of

people who are significant market

participants is maybe the way I'll 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's the

stability. It's not just the lower. It's

what are they? They can do business if

they know what it is. But if they don't

know what it's going to be, and it

depends on, you know, which side of bed

Donald Trump wakes up on and he's, you

know, that that's 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 the stock market. It has been

very shaky. You know, people can can

watch out for themselves. What has been

the story if I'm following the dollar's

value? So, I think it's a question of

competency. People are saying if he's

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't? If you look closely at his tax

bill, it's it's Trump won plus a lot of

nutty

ideas and people thought he wouldn't

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's serious

about it with if you deregulate too much

is a problem. Maybe he's not competent.

in the British used to have this thing

with Liz Truss where you know she was

the uh prime minister for like a you

know a nancond and she came out with

this policy she hadn't really sold and

everybody sold the pound the interest

rates went up it collapsed and they

called it the premium because she

just didn't understand and people were

talking in similar terms about what was

going on here I don't think it's just

about the tariffs the tariffs are

terrible but it's a deeper loss of trust

trust in the governance, the

institutions, but most people don't

track just what is happening literally

to the dollar's value, where people are

putting their money in other currencies.

You do what has happened to the dollar's

value, what has happened with other

currencies. I mean, what are the the

signs that the world's relationship to

the dollar that the dollar is changing?

So the thing which was just

a incredible moment for everybody was

when our the dollar was going down in

value but long-term interest rates were

going up. There was a a couple within a

couple days after his announcement the

10-year interest rate which most people

don't think about but it is the

bellweather of global financial markets.

It's the most important market. It's the

deepest market. Every your car loan,

your student loan, everything gets

referenced off the 10-year rate. Not

what the Fed does. Everybody talks about

this overnight rate the Fed sets. That's

not it. It's the 10-year rate. Everyone

looks at that. It's been going up. And

suddenly it jumped half a percent within

a very short period. And usually the

dollar goes up. Boom. The interest rates

are higher. I'm going to put more of my

money in the US. But no, the interest

rate was going higher in the exchange

rate was going down. That happens when

people are selling when whoever it was,

the Chinese, everyone. There was a

people pulling out of dollar assets that

we were, you know, it's sell America

first. Was that is that dangerous? Did

that reverse itself?

It's stabilized for the moment because

Trump has retreated partly. But I I

think I think we

have what I thought might have taken 10

or 15 years to happen took place within

a week. Uh and we're never going back.

So our exorbitant privilege, our lower

borrow, it's never going back to what it

was. We may have lost a quarter%, a half

a percent, just permanently uh higher. I

mean, we can have a recession to bring

them down. I won't get into that, but

you know, we haven't I don't I don't

think that bell will ever get unrgung.

Let's say in 2029, right, you have, you

know, pick your pick your candidate,

right? It's President Pete Buddha Judge,

it's President Wesmore, it's President

Gretchen

Whitmer. You don't think it all just

reverts? No. Because we said the 10-year

rate is the bell weather. I didn't say

the four-year rate, it's the 10year

rate. And so what happens in the next

election? What happens in the election

after that? And it's possible we have

we've shown we're willing to, you know,

put a gun to everyone's head. Uh and

Trump is many of the things Trump does

other presidents have thought. Go back

to the Watergate tech gate tapes and

Nixon where he recorded uh all his

conversations. It he's very younger.

He's very smart, but he's devious and

he's throwing those sharp elbows. He's,

you know, you know, I think there's he

says, you know, somewhere, I don't give

a damn about the Italian lera, you know,

or something when the Italians were

having a problem. So, uh, they see

they're looking peeking behind the

curtain of what's going on. It's Trump's

mind and it's particularly

unpredictable, but it's it's deeper in

our DNA. The way social media is, the

siloing of uh what everyone reads and

watches and listens to, they're going to

worry. It happened once, why wouldn't it

happen again? So, yes, it's hard to

understand what, you know, what the plan

is. That's definitely I think we have

lost trust in a way we're never going to

get it back. You say it's 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 in

his businesses and everything. and that

if it works out for him, right, in 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've 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. Uh

maybe it doesn't. By the way, he's he's

making these bills come due pretty fast,

but that it's a kind of like pulling it

from the future into the present. Okay.

I mean, benefits that would have been

spread out over a long time. We'll get

them all now and then deal with a crisis

sooner. I'm actually not someone who

thinks Trump's 100% wrong about

everything he says, but in this area, I

I'm just I'm working with you. I'm

struggling to think of what the logic

would be. Um I I uh we you know, let's

go back to the economy is terrible. I

mean it's you know the even the person

in the low 20 percentile from the

bottoms very well off even compared to

probably you know 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 mid9s even into

2000 they're 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's terrible. I mean

that's it's very hard to understand it.

Say there are things I need to fix uh

income inequality try to bring back you

know meaningful jobs and th those are

fine but uh I think most of the

solutions to those are domestic policy

and things you could do differently and

not you know kill the goose that's lay

you know that lays the golden eggs. your

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,

so you track uh the rise of Japan and

say some things that it had been a while

since I 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 that seems

crazy today. Their stock market was

worth more. Actually, their housing

stock was worth more. They Japan's about

the size of California. And its housing

it's hard to get your head wrapped

around this, but its housing stock was

worth more than the United States at one

point. They they just seemed like the

coming thing. And that is I that's what

everybody thought. I don't think people

anticipated what problems it would have.

And I think had they not made some

blunders, which we were lucky they did

and and we threw some sharp elbows at

Japan. I mean, that's a case and that

maybe that's why the Mara 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 by a lot more

than they intended to. And I I' I'd say

that's one of the things where I changed

my mind over time about just how bad

that was. I was sort of the view, well,

you know, they had their own internal

problems. Their crisis, they had a they

had a two decade growth crisis starting

in the early 90s. And you know, that

happened later. It happened six or seven

years later. And I later came around to

that's wrong. uh the view that for

example the Chinese think that was a

disaster. Japan gave in on that. They

will never give in on 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't have a

monetary framework. They didn't have a

regulatory framework. And for a while

they were doing great. Uh but then but

then they weren't. And uh so it was a

surprise how much it felt. I was in

Japan as a visitor scholar at the Bank

of Japan in the early

1990s. I didn't know what was going on.

None of my thesis, you know, friends who

were economists. Nobody knew what was

going on. I'd actually invest I left the

Federal Reserve and invested my small

pension into Japanese stock. Seemed like

a great idea. And it was if I had sold

then you instead of later. So you can go

back to other occasions where we were

when Europe nobody knew it would fall as

short as it did. Nobody in the 2000s

this part I was more around for in the

2000s there were all these books about

the the European future you know if you

just put out trend lines I mean the the

EU as an economic zone is bigger than

the United States and they have fallen

way behind us. We've had a little luck.

So, I like to quote this chess player I

knew, Bent Larson, one of the great

chess players. I played him. I knew him.

And uh he had this saying, so I heard

him I was uh being interviewed. And he

was asked, "Well, would you rather be

good or lucky?" And he thought for a

second, I'd rather be good and lucky.

And Americans know they've been good,

but they don't know they've been lucky.

And fast forward, I mean, our luck may

have run out here, you know, that that

we've had a lot of good turns where the

other team was making mistakes and we

are I don't even want to call it a known

goal. It's like what do they have those

shootouts? This isn't being unlucky.

This is being not good. Incompetent.

Yeah. Yeah. No, but we're unlucky in the

the policies that the administration

Right. I'm saying that's not being

unlucky. We chose this. It's being not

good. Well, it's true because, you know,

I mean, I don't blame everything on

Donald Trump. I blame a lot on us. What

would we have done otherwise? I mean, I

I know you've written a wonderful book

about a brighter visions for the future,

but our political systems stuck on a lot

of bad ideas on both sides. And this is

us. It isn't just one person. Everything

would just perfect if we didn't have

this one person. It's much it's much

deeper in our beliefs about ourselves

where we are uh a certain rot you know

in our in in our system. I mean maybe

that's too strong to draw the analogy

with Rome but uh it you know wouldn't we

can 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 you've been wor you've been warning

that America's debt situation is

unsustainable for many many years. We

sort of gone through periods of how

controversial that was. I think more

recently kind of everybody's been

getting more worried about the debt.

Interest rates are up. Our you know

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're going to be raising

less money through them. they don't at

any level pay for the tax cut that is

currently being planned. So you could

very easily be looking at deficits of

like call 5 to 7%.

Uh and a world where they're

causing financial conflrations let's

call it um there's 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 uh

which could put pressure on that market.

Mh.

I'm not predicting a Trump induced

financial crisis, but it doesn't seem

impossible to me that those things could

combine in a very dangerous way. Not at

all. And uh I I think uh there's 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's never going to be

an issue. But actually the difference

between having 60% debt which is where

we were about 2005 of your income and

121% today. It's 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% down

to

60%. You could knock yourself out doing

stimulus the next in in coming years and

Donald Trump is going to hit this

because the debt's 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's losing some of

his exorbitant privilege. He's going to

throw around money and it's going to

come to bite us. It's not it's not the

end of the world. It's a little bit hard

to predict this man's mind, but there

two ways it can end, I think, for the

United States. Default's not one of

them. We don't 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% in the next how long? The

next 5 to seven years is what I say in

my book. I've got to make that a little

shorter thanks to Donald. The next three

to four years you would say a better

than even chance. Yeah. Better than even

chance that you have by inflation at 8%

or above. Yeah. Yeah. That's absolutely

what I'm saying because that's where

this is going. But you got to take out

foul. You're 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'd need to

commandeer the whole system because he

only controls one position and the

others could vote against it. So it's

pretty stable. There's an incredible

culture at the others at the Federal

Federal Reserve Board. The Federal

Reserve Board and the way but that's the

worry you're getting at here. The worry

I'm getting is that he finds a way to

corrupt the Federal Reserve and he

could. The idea that he couldn't. Of

course he could if he needs to. I think

a lot of people don't appreciate that

the Fed's independence is not in the

Constitution. Powell, he's the head of

the Federal Reserve. It's not in the

Constitution. If with team Congress and

Trump acting together, they could, you

know, bring it back into the Treasury.

So in you'd have to do that. Well, and

the Trump administration is a a lawsuit

in front of trying to bring it up.

Supreme Court basically saying these

independent agencies where Trump can't

easily fire the head of them. It's

unconstitutional. So they could win that

lawsuit and then they could do whatever

they want. Absolutely. And Powell's term

will end at some point. Yeah. I don't

think that would be enough. I think the

uh Yeah, but depending on who they

replace depending on who they replace

him with, but I they're not going to

reappoint Powell. They're not going to

reappoint Powell. He would not want to

be reappointed would be my guess, but

they're not going to reappoint him. But

it's it's it's not just that. It's the

whole construct. It's relatively new.

It's not ancient that we've had that. It

is a creature of Congress. It's not in

the Constitution. It could get knocked

out very quickly. But to have the

inflation option requires that. There is

another card you can play and that's

basically ramming debt down people's

throats. The Japanese have done that.

That's why Japan hasn't had a debt.

Japan has debt twice our size. But

they've used a to use a jargon word

financial repression. We're pushing

debt. The pension funds, the insurance

companies, the banks, everybody has to

hold government debt. And they've

avoided a financial crisis, but there's

no, you know, not enough money to lend

around to entrepreneurs, innovators.

They're they've gone from being richer

than us at the beginning of this to

being below the UK, France, Germany.

They've gone from they're roughly 60% of

our income from having been higher. And

it's partly this financial repression.

So he he has a couple cards he can play.

None of them are good. So we've sort of

talked about this history in in the past

couple 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 you know in Europe's case

two decades ago in Japan's case four

decades ago and it sounds a bit like

you're saying there's 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's not pre-ordained. We

were 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're 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 I think people

don't 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 it's not so crazy that things would

converge back to that. If they did, we'd

pay a higher interest rate on our debt.

Not as much as if they didn't use the

dollar at all. I maybe we still be first

among equals. It will affect our

national security. Our ability to use

sanctions is a heck of a lot of less

less. If you're Visa and you're the only

credit card, you can tell people do this

or you can't use Visa. But if there's

American Express and Mastercard, you

can't. Uh it'll it'll affect our

information gathering, our intelligence.

Modern intelligence is mostly cyber

these days. It's 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'll

we'll regret it, but it's sort of it's

sort of not an overnight. We're talking

about an inflation crisis. I think this

loss of the dollar's magnitude, the alt

comes down from the altitude. It is it's

sort of a slower burn. We will feel it

when that pandemic comes. When that

crisis comes, people love us. They don't

love us as much. We try to borrow

typically two or three times what

everyone else is borrowing and suddenly,

you know, the interest rates are moving

up faster than they do now.

So if over the next 10ish years, people

are just they've lost trust in the

dollar, what is 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

you know China has built financial

dominance? Is it that many different

currencies are used in slightly higher

proportions than now? the sort of

multipolar scenario that people talk

about. Are we all on Bitcoin? We're not

all going to be on Bitcoin. The

multipolar scenario, we lose market

share. Think of uh there's a there's a

natural network externality that makes

Amazon giant, that made Facebook giant,

that makes uh uh 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's not in China's,

Russia's, it's not in Europe's interest

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 we're offering them a golden

opportunity. Uh, I mean, China's already

courting Africa, Asia, South Asia,

especially Latin America. Europe is

remilitarizing. They're realizing that,

wow, this is a a a potential moment for

the euro. So, I think we lose footprint.

I do think Bitcoin's in the mix, the

cyber because part of the

dollar's footprint is the non- taxpaying

underground economy is very much a

dollar economy. That's nobody knows for

sure how big that is. My in my work my

estimates

20%. And wait, 20% of the global economy

is not pay a lot of it's not paying

taxes and crypto's very useful there. uh

it's it's been a real alternative aside

from being electronic. You can do things

more conveniently. It's more difficult

to trace. So crypto is going to take up

uh part of our market share. It's doing

it. The renim is going to take up part

of our market share. Not in not in New

York, but somewhere. And the euro is

going to take some of our market share.

And we'll 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's

important. Basically, yes. I think a

good system would be if everyone had to

write a check to us and didn't 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't really want NATO to be calling

the shots. And when there are NATO

missions, the US 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's sort of golden handcuffs

at the end of the day. Of course, if

they have their own powerful military,

that's a whole another story when we

disagree with them. So it sounds a bit

like one thing you're 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's been. Yeah. I mean, another way of

putting it is everyone wishes they were

us. I mean, this is the the great power

turning on itself and pulling into

retreat. And I think we're going to wish

we hadn't done it. I think uh the uh

comedian Dave Chappelle said it very

well. I want to wear Nikes. I don't want

to make Nikes. and it's going to be a

very different world. Always our final

question. What are three books you'd

recommend to the audience? Okay. Well, I

have uh I have a few books to recommend,

but I have to start out with my wife's

book, Muppets in Moscow, which I've

given you as a present about the making

of Sesame Street in the 1990s, which she

oversaw hundreds of uh artists uh the

making of it in Russia. making of it in

Russian original version in Russian and

overseeing uh directors uh puppeteers uh

writers and such and it's a uh an period

of uh tremendous instability. Uh another

book that I think uh is I just love and

people have seen the series but haven't

read the book is the Queen's Gambit by

Walter Tavis. It is one of the most

perfect books ever written. kind of

asked the question, what if Bobby

Fischer, the 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 uh Walter Isacson's Ben

Franklin. I just I I just hadn't known

everything about him. And he was the

best chess player in the colonies, by

the way, which you know, I was a

professional chess player. And uh he

printed money. He he was very technical.

figured it out. But uh you know what an

amazing person and I think uh an amazing

book. Ken Rogoff, thank you very much.

Thank you.

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