Hi everyone, I'm Nicolai Tangen, the head of the Norwegian sovereign wealth fund and today I'm in really good company with Ken Rogoff. Now Ken is known for his insights into global finance, economic history and for his incredible book which he wrote together with Carmen Reinhart which is like a seminal book actually and it's called This Time It's Different. He's out with a new book coming up soon. And you can look forward to it. Ken, wonderful to have you here. Wonderful to be here. Thank you for having me on your podcast.

How would you assess the current state of the global economy just now? Well, it was in modestly good shape, but obviously it's being thrown into chaos with the restructuring of globalization that Donald Trump comes with what's happening in Europe. You know, it it's a pretty wild time. I don't think it's it'd be a little bit much say it's unlike anything we've seen before. I think it feels a little like the 70s to me. Trump actually feels a little like Nixon to me, but obviously we're in for a wild ride.

Where are we in terms of American exceptionalism now? Well, it's been dented. I mean, I'd almost we sometimes call the US the hegemon, the one that dominates everything. And it's almost like the hegeimon is turning on itself. And Trump says, and I hope he has a plan, that it's all going to be better on the other side of this, but uh obviously the stock markets are getting nervous. Uh everybody's getting nervous that there might not be a plan. I don't know. I mean, I say I he's the president of the United States. I wish his policies well, but uh it's it's hard to understand exactly where he's going and what he's doing. Again, it feels like a throwback to the 70s in a lot of ways.

What are your biggest concern when it comes to the current economic policy? Well, I mean, the the the biggest concern is that uh we undermine the institutions that are the bedrock of US exceptionalism. You trust the rule of law. Uh when the United States gives its word, it keeps its word. I'm not saying we always did that, but you know, uh certainly with respect to paying our debts, uh I'm concerned uh certainly about this view that people uh who believe in global trade and global integration are globalists. I'm an unapologetic globalist myself.

and uh this fracturing of the global economy. I mean, Trump sometimes and his people sometimes say, "Let's go back to the 50s." Well, we had a lot lower income back in the 50s. Like, okay, maybe we'll have more manufacturing jobs, maybe, but things will cost a lot more. I mean, it's it's just a little hard to know how much of its bluster theater. He'll retreat. Obviously, early on that's what everyone thought that he was just saying this for his base and he would pull back, but uh you know that's uh um certainly not how it's been going.

Where do you see tariffs a year from now? Whoa. You threw in the year from now. I mean, it seems like he's spinning a wheel when he when he wakes up every morning. And first he spins the wheel to see what country it points at, and then he spins the wheel to see what tariff he wants to put on, and then he changes his mind the next day. I mean, that's that's a really hard thing to forecast, but I I I think he's very intent on it. So I'm guessing the US will have tariffs for example on Europe uh on on the uh on the order of uh uh I don't know at least 10 you know 15% 20%. And Europe will have retaliated and there'll have been a lot of noise back and forth. He he he seems to be a believer.

I even back in 2016 when he was first running someone who was uh close to him called me and just for did I have any general thoughts and I said okay first of all this conversation never happened I'm I I can't be seen as talking to you but if you ask me I discussed some things but the tariffs are a terrible idea why are you doing the tariffs this is this is and uh you know the person said Well, you know, the candidate, uh, Trump, uh, he knows politics better than I do, and he thinks 80% of Americans love tariffs. And actually, you know, I, sadly, I find that hard to argue with.

Um, my mother was a librarian, a brilliant woman. Uh, uh, she sadly passed away a few years ago, but she liked tariffs. And I would I'm an economist and she kind of knew I had a PhD in economist and I worked on international economics and I would say yeah but you know it would make everything more expensive and do we really want to do this and I went into the whole rigmarole about how we buy stuff from them and they'd buy stuff from us us and she just wouldn't give in you know she did not agree and I mean that's a you know very educated woman and so it's very popular.

And historically This has been one of the issues where the president who knows that people don't like tariffs, people like tariffs, stands and says, "Well, you know, this you you don't like you don't want to have to eat your your vegetables, but eat them and you'll grow and it'll be better." And uh Trump didn't invent this, by the way. Bernie Sanders, who was came very close to being the candidate in 2016, is very influential in the Democratic party. He had pretty much the same stuff. he wouldn't agree now, but there's not a lot of open water between really the left where the left was in the US and Trump. I mean, it's it's been one of those things which, you know, uh it's it's been obviously very good. Globalization's been great for the United States. Who are we kidding? I mean, the United States has been at the top. has benefited and yes, there are problems with globalization, but uh he he seems to just think it's really good for him. We'll we'll see how it plays out.

How bad are Tariffs for globalization? So, truth be told, if we just slapped on 20% tariffs, it would be very bad, like a big tax hike. It would reduce trade. it would interfere with the global supply chains and such. It would not be the end of the world if together with that Trump did a bunch of sensible things deregulation uh you know finding uh ways to uh improve innovation. I don't know. But if he did on balance it could be okay. They do raise revenue. What what's just been so weird about it is the randomness of it. Just you don't know what's coming.

It's like he wants everyone to hide from him. I I I sort of look at country I I don't know if you ever visited the North Pole, but the the uh uh penguins are sort of getting eaten by the polar bear and they're very sad about that, but they don't want to go in and fight the polar bear. They sort of hold back and that's how everyone is. they want. Oh, go look at the other country. And anyway, I I I think the real problem is the randomness and what it signals about other things to come such as central bank independence.

What will be the impact on inflation from the tariffs? So that is not a big deal. I mean uh it raises prices. is the United States is pretty closed and it raises prices there'll be a short-term effect that's I mean it won't be pleasant and I think some of it will be inflation some of it lower quality but the the problem is more uh innovation slowing growth over the longer run and uh the effect on American consumers well you know of course we pay the tariffs dollar for dollar. Every study shows that. It shows it on other examples. It shows it when he put in tariffs in 2018. And uh so you know this whole story, it's a little bit obviously like Mexico will pay for the wall. The American consumers will pay the tariffs both in terms of higher prices and I think lower quality. their goods that if they revert to the United States will will be lower quality than we get at the moment at least for a long time to come.

How would you navigate the trade negotiations in the US from like a chess player point of view? I think you have to combine, you know, long-term strategy. What is it we want to do? Some of the things Trump is forcing Europe to do, it probably should have done a long time ago. I think I've I've said whenever I've given talks in Europe uh over the years or at least often we need Europe to be a geopolitical counterweight to the United States. You can't every time there's a presidential election and you know you think people think you know this is the worst thing that'll ever happen. I don't know what's to come. Every time there's a presidential election you can't suddenly rethink everything. you need a counterbalance and Europe uh for whatever its frictions and divisions probably is more more stable. You don't have one election in France or Germany suddenly changing everything. Change a lot but not everything. So that's good.

Uh on the other and you you uh you need to think about um being more independent in tech. that Mario Draghi, the former head of the ECB, wrote a report where he made that point where Europe's lagged. And those two things are connected because military often provides the funding early on for uh tech uh tech startups, tech investment and uh I mean then there's short-term tactics which obviously really hard to know. I mean, do you supplicate to Trump and kiss the ring or which your public hates, but then he's not throwing a 200% tariff on you, or do you just sort of turn the other cheek and hope that it calms down? I mean, it's it's it it's not it's not good in a way, but on the other hand, it kind of forces Europe to g be more assertive, to be more independent in a way that I think has been a long time coming.

Will we have a recession in the US? I mean, I think the odds have gone up sharply. And it's sort of funny, but the nature of the recession we might get is a loss of confidence, not an oil shock, not a pandemic, not a global financial crisis. But among consumers, particularly consumers who didn't vote for Trump, which is about half of people, they think it's the end of the world. They think it's 2008-9, the global financial crisis, the pandemic. The indicators for the Democratic voters are just off the charts terrible. Oddly enough, they also think inflation's going to go through the roof. You talk to the Republicans, everything's ducky. They economy is doing fine. There's nothing to worry about. President's doing a great job. Inflation's going to be low. I mean, they're looking at the same data and just drawing completely different conclusions.

Have you seen this before that um political uh inclination uh impacts the way you look at data this way? I've never seen it, of course we see it but uh we saw it under Biden where the Republicans thought inflation was way higher than it was and the Democrats thought inflation was way lower than it was. I mean just ask what's inflation and the Republicans just give a different answer. But it is much more pronounced and it can cause a recession because yeah you the the Republicans are not going to spend enough to make up for what the Democrats aren't spending. I get so many letters and emails from relatives, friends, even professional colleagues. Should I sell everything? You know, is the world ending?

Do you believe there is such a thing as a Trump put? He clearly looks at the market, but this is someone who's very determined to put his place in history. He I don't know if it came from his childhood or something, but he has this deep belief that tariffs are beautiful. He says it again and again. It seemed to have worked very well for him politically. He in his first term when he said something, he delivered it. And so I I don't you know that that was certainly the the thinking that the markets had was that he would pull back. Now I want to emphasize the real concerns the randomness of it if if he just put in tariffs which we did think he was going to do and you know 10% 20% it it would not have been the end of the world. Bad idea but not crippling you it would hurt growth in the long run. it would hurt US welfare, but you know, nothing to uh nothing compared to some of the bigger things that go on. So, I don't I don't believe in a Trump put. Uh I think he has conviction.

What's your view now on on the US dollar's global role? So I think uh and my book argues that we sort of reached the peak 10 years ago in terms of the dollar's footprint and dominance in the global economy and lots of different measures uh you know how many reserves people hold uh number of transactions in dollars what's priced in dollars and we won't need to go into detail. they all kind of tell the same story and I think there's this what I sort of portray there is there's this sense in which the dollar has been lucky at different stages the US has been good the US system's good but as the US has faced challenggers I think they've fallen short more than I would have guessed and it it doesn't mean we'd have the euro instead of the dollar but it is a surprise that the euro right now is a regional currency It's just basically not a central currency outside of Europe.

I actually towards the end of the book quote the Danish Grandmaster Ben Larson uh and he was asked would you rather be lucky or good and he said I'd rather be lucky and good and I think Americans forget the lucky part we just beat ourselves on the chest we're the greatest country in the world everybody loves us so I think there are a lot of trends pushing towards the dollar still being at the top but not quite as much king of the world as we were.

Is there a scenario where the dollar uh loses its status as the world reserve currency in a bit more dramatic fashion? What what could what could cause that? The global currency normally changes slowly. you you know you had the Spanish peso and it's like 100 years yeah like a hundred years and there's usually you know you die a slow death over time and the newcomer comes up and you're even for a while and I I would describe the dollar as late middleaged at the moment uh you know there's no nobody's going to take over right now but for it to actually disappear you wouldn't have seen it but there's actually a movie uh last year something like called uh civil war where it's a dystopian not so distant future where the dollars become worthless and everybody uses the Canadian dollar instead. I don't know you know but no I don't see it happen dramatic happening dramatically.

Well, there's the uh polemic stuff like when Lula says he doesn't want to use the dollar in Brazil and he he has no power. I mean, he's not able to do anything. But I think the Chinese take it very seriously of wanting it's it's not that they want to get everyone for everything to use the renminbi their Chinese currency instead. It's that they want to expand its footprint. more things priced in Chinese currency, more loans priced in Chinese currency. And they've got a couple reasons for this. First of all, they should have done that 20 years ago. Over time, it has become a little looser. But I think what's really scared the daylights out of them is watching what the US has tried to do to Russia with the sanctions. And you know, we don't know, but China is certainly thinking about uh, you know, provoking the ire of the United States at some point by trying to take over Taiwan and looking at the sanctions.

And it it isn't just, you know, it isn't just the sanctions, it's the ability of the United States to see everything. And I a thing many people don't understand about the military and power and dominance of the United States is the US gets to make the rules of the game when bankers are negotiating over you know what kind of uh transactions mechanism should we have how swift is something people may have heard of the uh international uh messaging system that's used by banks all of these negotiations the US, you know, it's not like they say it's our bomb and we're going to go home if you don't do what we want, but they can. And it gives them this tremendous power and so many things go through the United States. We Donald Trump can possibly see some things you bought uh because the clearing goes through the United States. If it touches the dollar, most of it goes to the United States. So by getting more things into rembi getting more things into the Chinese currency and developing their own the word is rails but their own clearing mechanisms they can get around this that's as big as all the other things that the Chinese are looking at when they're trying to diversify.

So uh official Chinese GDP growth is around 5%. Some people think it's it's lower and you are quite skeptical when it comes to the official figure as well, right? Yeah, absolutely. They're throwing people in in jail for questioning the figure. They're academics who said in uh too publicly that they thought the growth was overstated and they got in trouble. What are the global implications of a Chinese economic slowdown? Well, um it's very big on uh energy exporters and commodity exporters. I mean, if you if we were to turn around and tell you that China's growth's going to be 8% the next 2 or 3 years instead of I think it's going to be 2 or 3%. Uh probably that would be very good for inflows into the Norwegian sovereign wealth fund. I mean and for Norway in general uh and for the United States as a big uh energy producer and good for Brazil and good for Argentina.

So, do we have a some kind of japanification in China now then? Yes, we do. The question is a matter of degree. So we those of us who work on financial crisis look at Sweden on the one end is like the fastest recovery ever and the other end is Japan which by some measures took two decades. China's Sweden time is over. That's gone. They're having a longer crisis than that. Uh it looks to me like it'll be a few more years uh to I don't I don't I think that China has a lot of things going for it but they have this over centralization of power which you know may undermine their longer term growth but it's uh you know certainly the the the deflation the slow growth the housing problem the ahe overbuilding in infrastructure and housing the similarities are are really quite remarkable.

Well, the thing is where China was doing really well was their private sector. They're they were very innovative. There are areas of tech where they're just fantastic and uh they're great investments in China if you could make them now. But they they crush them. You know, famously Jack Ma who recently reappeared had sort of he's the founder of Alibaba and one of the great innovators at China just sort of disappeared and you know he was a little too vocal about his power. They started putting uh party hacks on the boards of financial firms of you know uh their tech companies. So they need to go back to this growth model where the private sector leads and the states not doing everything. But President Xi's been very reluctant to let go of that power. He's worried about instability.

There is quite a bit of manufacturing moving out of China. How does this impact the situation? Well, I mean there's still quite a manufacturing force, but it's reduced invest. It's reduced investment into China. So uh it's been great for Japan, for Korea, for Singapore, Malaysia, even Indonesia and India. So as you well know, a lot of companies have this China plus one strategy, meaning we're leaving our stuff in China. And by the way, they can't get it out right now anyway. And we're going to do our new investments uh we're going to do our new investments somewhere else. But I I don't think that alone is the big thing. The big thing is that housing, real estate's plummeting. Consumers are panicked. They don't trust the government. They're not spending. That's really the big impetus of why they're so going growing so slowly.

A few sentences on India. Where do you see that? Well, I mean, India's been a positive story for a while, right? I mean, uh, we can still point to a lot of problems in India, but they have faster growth rates than China. Who'd have thought that? and seemed to be for a while. Uh Modi is building infrastructure finally uh in India that you know is laying the groundwork for future growth. They still have myriad problems. A few monopolies dominate a lot of the economy. We're talking about Donald Trump's tariffs. India is already there and they they've actually come down some but you know not uh not not enough. So, you know, it's doing well. I'm optimistic but it's hard to get euphoric about India because it's just so hard to govern a country of 1.4 billion people.

How has your uh view on inflation changed over the last 10 years? So I have always thought inflation was in remission and not dead. And my academic papers have made this case. My colleagues across all of academics, I think, became in somehow mesmerized, brainwashed by central banks saying there's never going to be inflation, nothing to worry about. I think in fact the period where inflation was really low uh the central banks were good going back to Ben Larson but they were also lucky because globalization helped the rise of China helped. There was a general consensus away from populist policies more or less and that helped. They had the they had the wind at their backs.

Now they don't. And not only did they have the wind at their backs in terms of these techno factors, but the politics were leave the central bank alone. And that has been thrown by the wayside in in many countries. So inflation doesn't have to be high. The central banks can control inflation. But e economists, prognosticators, opinion makers had just forgotten that inflation's a political economy problem. And if you don't really have central bank independence, that's the core of it, you're going to periodically run into trouble.

Is 2% uh still a realistic target? Well, I mean, I uh you're asking, are they going to ever get down to 2% again? I think what I think is they will but we will see in the next my book says 5 to seven years but that was the I did the page the final day of page proof was just the day after Trump got elected I might make that a little faster now than 5 to seven years there's going to be another big burst of inflation similar to what we saw in the uh after the pandemic what's going to cause that surge what's going to cause That will be another shock where the central banks are, you know, get put into a corner where they worry about recession, they worry about inflation, but the pressures are going to be towards worrying about having a recession and they're just not going to be able to stand up to the politics the way they might have say in 2008 and 2009.

Call it a cyber war, another pandemic where it's very hard to maintain growth and keep inflation low. uh US debt being out of control if that goes and I don't know what's happening but my best guess is that both parties want it to go up and it will it it's going to put upward pressure on interest rates and if the Federal Reserve raises interest rates no problem there won't be inflation good luck with that even if Trump wasn't president it's ve they're already high it's very hard to do so it's I'm making a political economy call I'm not saying there's some, you know, constellation of shocks that's just going to happen in a certain way and create inflation. I'm saying that when the going gets tough, some of the, you know, some of them are going to hide and not fight the fight.

A thing a lot of people don't understand is the central this the Fed is not the Supreme Court. It does not have that kind of constitutional status that the ECB does have. And it it could disappear in a week. And by the way, it isn't just Trump that wants it to disappear. The left wants it to disappear, too. They have all these plans. They want to, you know, have it print money and give it away to people. So, there's there's a lot of pressures on on the Fed's independence coming from both sides of the spectrum.

The most fundamental point is that Fed independence is a new thing. Uh central bank independence is a new thing. I mean the Fed was not the the Federal Reserve has this grand building that you see pictures of, you've probably been to in the 20s and you know early 30s. They were in a room in the Treasury a few people. This whole they were part of the treasury. most countries the central bank was part of the treasury. The notion of central bank independence which I by the way I think I wrote the first paper on uh just 40 years ago now and back then almost no one had independent central banks. It's new. It's experimental and there a lot of people who are saying well it's had its benefits but now that inflation's down we don't need it anymore. it we it was useful to bring inflation down. Now we don't need it, which of course, you know, they don't they don't see that that's why inflation's down because you have central bank independence.

I think, and this may sound really out there, I think we're going to see Nixon like price controls like we saw in the 1970s. Maybe, you know, other kinds of controls. uh we're going to see things like we uh Reinhardt and I label financial repression which we have to some degree now since the financial crisis where banks and financial firms are forced to hold more debt at ending up at lower returns than they'd like. So I think that you know kind of wilder stuff like that is coming to a theater near you soon.

Is the current level of US debt sustainable? Well, yes and no. I mean, uh no in the sense with on its current path, it's going to have to get resolved by inflation. Uh it's not going to get I I think again going back to my colleagues in the profession, there were these people who argued interest rates would be lower forever. Larry Summers had this I don't know if you've ever had this line in your podcast, secular stagnation. We're never going to grow again. Uh interest rates will be low. We're not inventing anything. Everybody's getting old. And I I I debated this with him uh 10 years ago. Paul Krugman, even Peter Teal, actually Gary Kasparov uh at one time. And I've always thought, you know, that people are very short. They're looking at the recent past too much. And if you look at a longer time period, you would see that this period of low interest rates was going to go away. I think it has.

And if it if interest rates come way down, well, any debt sustainable if you don't have to pay interest on it. But with the level we have and the uh rate it's going, we're going to need be need needing to make adjustments. I don't think politicians have prepared people to make the adjustments. So at the you know what I see happening eventually and it'll happen together with a big shock like we discussed pandemic we're going to have a a big inflation that's going to partly bring the debt down but this time interest rates are going to go up a lot more.

The US is running a I think it's a 7% of GDP deficit this year. I mean, and it'll come down a bit, but who knows how much. Uh, all the projections are the debts currently at 36 trillion. The Congressional Budget Office, I think, has it going to 65 trillion in 10 years. So there are lots of things you can I'm not tell I I'm not about what you should adjust. I'm not about the size of government. That's a separate question. But you know some kind of adjustments will need to be made. And one of the things that has really puzzled me throughout all this is that particularly on the left they just want to make debt really big. That's been the argument for a long time. Anyone who thinks that big debt is a problem is in favor of austerity. They think you must not want to give people stuff. And I would say no, just raise taxes. If you want to give people more stuff and bigger transfers, all for it, more power to you, but raise taxes. This whole idea of it's a free lunch. You can just give everything away. You're shooting yourself in the foot, which the Biden administration did to some extent. And on the right they say, "Oh, we can do whatever we want because when we cut taxes, growth just soarses, doesn't cost anything." And it soarses a little, but it doesn't pay for itself. So, they've both been telling this fiction, which I think now interest rates are saying the markets don't believe.

I mean I think the United States even if Harris had won, she was the one opposing Trump. uh is not prepared to defend Europe, the Middle East and Asia at the same time. The US defense budget which I was like 8% of GDP uh towards the end of the cold war is 3 and a half% of GDP now. I think it will go up uh again regardless of Harris or Trump winning. But uh most of the foreign policy experts I talked to think the US does not have the capacity to project power in two regions at once, much less three. And so it's going to fall to Europe to take more responsibility. And it's it's not just going to 2%. There's decades of underinvestment that need to be made up for. And that that's going to be that's going to be a big adjustment for Europe.

Is there a um could it be that we potentially underestimate the deflationary effect of new technology including AI? What do you think? Absolutely we could. Um so you know it's possible that technology will produce an effect like globalization did putting downward pressure on wages and putting downward uh pressure on prices. And that's a distinct possibility. But on the other hand, I think uh AI is also going to lead to a lot of uh political tensions, uh a lot of worker displacement.

So yes, there's definitely a bright side to AI and I've been arguing that for for years. back when I did the debate with Peter Teal and Gary Kasparov uh just over a decade ago, they were arguing this idea there wouldn't be growth again. And I said, I'm a chess player. I see what's going on with AI. It looks to me like it's going to be good. What worries me is that it's going to be so fast. Humans, mankind, will not be able to adjust to it. And that's what worries me right now. the uh you know the potentially chaotic change that could happen with AI. We obviously see it in warfare but we may see it in the workplace as well. I I I try to be an optimist about it, but I I don't buy this idea that don't worry about inflation because this is going to make everything cheaper. These political pressures on central banks are very very powerful. So I think inflation is going to be a problem for the next several decades even though I do think AI will transform our lives.

Where are you the most different from other economists in your views now you think? Well, where I have been different uh for some uh in many places over the years, but right now where I've been different is I was sort of all alone in arguing that real interest rates weren't going to be low forever among academic economists. I was uh alone in saying when they rise debt which seems like a free lunch today uh is not going to be I would say I was also pretty isolated in saying China was not going to grow to the moon uh that it would have a financial crisis.

One thing I say in my book uh is that the dollar is not going to be what you're used to. That it reached its peak and it's coming down. That is way out of consensus. And uh I again I I I think we did see some of that in the Nixon era. I think we're going to see it again. But uh you know that that I I've sort of discussed over the the our time here some of the reasons I thought that was true. It's not just the dollar is going to come down in value. I think that too, but that its footprint's going to fall. We live in a dollar dominant world. The dollar is going to stay first, but gradually its place is going to come down.