Uncertainty in debt ceiling talks undermines confidence in US institutions: Ken Rogoff
The former IMF chief economist and Harvard professor talks to Open about the US debt ceiling crisis and the likely fallout
24 May, 2023
Kenneth Rogoff, Professor of Economics and Maurits C Boas Chair of International Economics at Harvard University
Globally acclaimed economist Kenneth Rogoff, who recently said that India will outdo its emerging-markets peers, warns that the political crisis in the US over the debt ceiling will lead to payment delays, and possibly to a government shutdown. In a pithy response to questions from Open, the former chief economist of the International Monetary Fund (IMF), who also teaches international economics at Harvard University, is worried about the slide in credibility of American institutions with the debate over how to raise the debt ceiling to prevent a debt default raging on without a resolution in sight.
A prolific author of books on international economics, especially monetary economics, Rogoff has made definitive contributions on multiple subjects that include the functions of central banks and exchange rates. An authority on financial meltdowns, the 70-year-old academic has advocated getting rid of most of the cash from the economy, including 100 dollars, 50 dollars, and 20 dollars, in a phased manner. An alumnus of the Massachusetts Institute of Technology and Yale, Rogoff had taught at Princeton before he shifted to Harvard University where he was a doctoral adviser to, among others, Gita Gopinath, the Indian-origin economist who is currently deputy managing director at IMF.
His best-selling works include This Time Is Different: Eight Centuries of Financial Folly, which he co-authored with Carmen Reinhart; and The Curse of Cash. Meanwhile, he did not answer a question on former US President Donald Trump lowering corporate taxes, and the unfairness of the prospects of the federal government having to borrow from them at an interest. Excerpts from an interview:
How accurate according to you is the US Treasury’s deadline of June 1 to avoid a potential debt default? Could certain measures – like those taken in 2013 – buy the US more time to prevent a default?
The United States has ample income from tax revenues to pay the interest on debt, and maturing debt can be rolled over. This is a political crisis that will lead to payment delays, possibly to a government shutdown. It would only morph into default on bonds if it remains unresolved for a significant length of time.
“The United States has ample income from tax revenues to pay the interest on debt, and maturing debt can be rolled over. This is a political crisis that will lead to payment delays, possibly to a government shutdown. It would only morph into default on bonds if it remains unresolved for a significant length of time.”
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Will a delay in resolving the debate over the debt ceiling likely impact social security programs in the US?
Neither side seems interested in touching it.
Again, how do you expect this uncertainty over the talks by President Joe Biden and House Speaker Kevin McCarthy on how to raise the debt ceiling to affect the rest of the world?
Mainly it undermines the general sense of confidence in United States institutions.
How are countries like China and Japan, which are flush with forex reserves held in dollars, going to benefit from this situation?
The interest rates on US debt may go up slightly.
Are you worried that China will now look at ways to reduce exposure to US Treasury bonds and promote Yuan as a global currency?
It is not yet relevant.
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