The Zhitong Finance App learned that Harvard University economist Kenneth Rogoff (Kenneth Rogoff) warned that America's worsening fiscal difficulties may be difficult to resolve in the short term, unless a major crisis breaks out, it will be enough to alarm voters and force them to demand change.
In an interview on Friday, Rogoff said that part of the reason why US debt has continued to accumulate over the years and no one is paying attention to it is an almost “religious” obsession within the economics community, believing that interest rates will fall indefinitely. However, at the same time, he pointed out that the convenience rate has rebounded from a low point and continues to rise, yet political leaders have never made corresponding adjustments.
“The direction of interest rates has been reversed, but Washington's decision is still in place,” Rogoff said. According to information, he was the chief economist of the International Monetary Fund (IMF), and this time he made the above remarks while attending the annual seminar hosted by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyoming.
Rogoff's comments come at a time when America's public debt is surging. Last week, the total US debt surpassed 40 trillion US dollars, and even some former “deficit dovish” people were shocked. And the continued rise in interest rates — the 30-year treasury bond auction had the highest borrowing cost since 2001 — further boosted interest expenses, creating a potential “vicious cycle”: worsening debt encouraged investors to demand higher yields, and higher yields increased debt burdens. Furthermore, Washington's political community generally believes that voters are unwilling to accept tax increases or large-scale spending cuts to reduce the deficit.
Rogoff pointed out that the current pricing of long-term treasury bonds already reflects a new reality, that is, once a crisis hits, the policy space between the Federal Reserve and the US government will be extremely limited.
He further mentioned that there may be various “shock” scenarios in the next five years, including cyber wars, disruptive changes brought about by artificial intelligence (AI), and geopolitical conflicts, all of which may drive interest rates to rise sharply.
“The crisis erupted when the shock hit and you lacked resilience,” Rogoff said. He also said that compared to the situation that may occur in the next five years, the current war in Iran “is just a small shock.”
When talking about social security reforms, Rogoff was also outspoken. He pointed out that in order to push for substantial reforms to welfare programs, a crisis must first be used as a catalyst, because voters are still unaware of the urgency of the problem.
Rogoff said he already predicted in his book “Our Dollar, Your Problem” that the situation “will eventually end in some kind of crisis” until reforms are politically viable. He also added that if someone were to run for election in the 2028 general election with the restoration of the social security system as the political platform, the result would simply be “voters are at a loss and don't buy it at all.”