Kenneth Rogoff on Monetary Moves, Fiscal Gambits, and Classical Chess

Podcast Notes Playlist: Business

Conversations with Tyler

Key Takeaways

• “Looking way forward, we are on an unsustainable path.” – Kenneth Rogoff on the US fiscal situation
  • The debt continues to balloon and another inflationary impulse is on the horizon
  • Higher taxation is likely as a means to manage the deficit
• Japan has been effective at becoming sclerotic slowly, but their economic model is not worth imitating – especially if you are trying to compete with China
  • Japan could be in serious trouble: It is finally experiencing inflation, needing to raise interest rates, has stuffed government debt into every orifice of its economy, and cutting old-age benefits to pay its growing interest expense
• “I think this is absolutely an existential crisis for Europe. It may lead to them becoming more cohesive. It may lead to them becoming more of a geopolitical power, but yes, they are going to have to make choices that they haven’t had to make.” – Kenneth Rogoff on the economic situation in Europe
  • The US brain drain of Europe’s top talent contributes to Europe’s slow economic growth
• Suddenly, the United States spends more on interest expense than it does on defense spending
  • The fact that real interest rates appear to have regressed to their long-term trend is the most important macro change in the world
• The US should not be the first nation to implement a CBDC, if it ultimately chooses to do so
  • Why change the rules of the game if we are on top and winning?
  • The US is so big that we are probably headed towards having competitive stable coins instead of a single CBDC
• Bet on mean reversion: For many variables, it’s wise to assume they’ll eventually drift back toward their average – it’s a useful principle to keep in mind
• The predictability of political business cycles: Those in power ignore the debt, the problem grows, and we end up exactly where we are now
• Choosing the optimal inflation rate is one of the greatest macro puzzles – should it be 0%, 2%, 4%, or something else?
• China has dug itself in a very deep hole that will be difficult to dig out of: Innovation is required for a successful economy; just growing by building more roads and infrastructure will result in diminishing returns

Read the full notes @ podcastnotes.org

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Harvard economist Kenneth Rogoff approaches global finance with the same strategic foresight that made him a chess grandmaster. Author of the new book Our Dollar, Your Problem, Rogoff doesn't sugarcoat America's future: he foresees a significant inflation shock within a decade, far more severe than the post-COVID bout. When this second wave hits, he warns, "credibility's really going to be shot."

In this conversation, Ken and Tyler tackle international economic dynamics, unresolved macro puzzles, the state of chess, and more, including whether trade deficits are truly unsustainable, why China's investment-heavy growth model has reached its limits, how currency depreciation neutralizes tariff effects, Pakistan’s IMF bailouts, whether more Latin American countries should dollarize, Japan's deceptively peaceful economic decline, Europe's coming fiscal reckoning, how the US will eventually confront its ballooning debt, the puzzling absence of a recession during our recent disinflation, the potential of phasing out large denomination currency notes, the future relevance of stablecoins, whether America should start a CBDC, Argentina's chances under Milei, who will be the next dominant player in chess, hanging out with Bobby Fischer, drawing out against Magnus Carlsen, and how to save classical chess from excessive computer preparation.

Read a full transcript enhanced with helpful links, or watch the full video.

Recorded April 2nd, 2025.

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