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Good afternoon, welcome. I'm Kal Raustia.

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I direct the UCLA Burkle Center for International Relations, and it's my great pleasure to welcome you to this year's harburger lecture. We have done this lecture for many years at UCLA past harburger. Lecturers include Melinda Gates, Esther Duflo, Jason Furman and last year, Nobel Prize winner in economics, Simon Johnson. This year, we're really honored to have one of the world's most influential economists, someone who's well, I'll get into exactly what he's going to talk about, someone who's well known for many things. For many things, Ken Rogoff of Harvard, and he's going to talk about a topic that I think couldn't be more timely, which is the future of the dollar and the dollar's trajectory in the coming decades. So we'll begin in a few moments with some remarks from Professor Rogoff. I'm going to properly introduce him and his Fireside Chat companion my colleague, Kim klausing in a moment. So after Professor Rogoff speaks, Professor klausing will join him on stage. They'll have a conversation. Time permitting, Kim will open it up to questions from all of you. So I just urge you, if you have a question and there is time for questions, please just raise your hand wait to be called on, I believe we have microphones for that we do. Okay, so we have a microphone to just wait for the microphone when we get to the question part, and that will that will wrap the lecture. So let me introduce our speaker and his interlocutor. So Kenneth Rogoff is the Moritz Boas professor at Harvard University and formerly the chief economist at the IMF, the International Monetary Fund. His influential 2009

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book with Carmen Reinhart, also a harburger lecture. This time is different, eight centuries of financial folly explored the similarities across many centuries in the roots and the aftermath of various financial and debt crises. His most recent book, his 2025 book, our dollar your problem, an insider's view of seven turbulent decades of global finance explores the post war Rise of the dollar. Challenges ahead from crypto and from the yuan, and argues that the period we have enjoyed of reliably low interest rates, low volatility, low exchange rates, et cetera. Exchange rate volatility has come to an end, or will come to an end. He'll elaborate on on the points when he gets up there. Ken is

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an elected member of the National Academy of Sciences and of the American Academy of Arts and Sciences. He's long ranked among the top dozen most cited economists with an astounding 137,000

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citations. And an H index, if you know what that is, of 109

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very impressive in his spare time, he's an international Grand Master of chess in his spare time,

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Kimberly clowsing holds the Eric Zolt chair in tax law and policy here at UCLA, one of my colleagues at the law school. She's also a non resident senior fellow at the Peterson Institute for International Economics, member of the Council on Foreign Relations, research associate at the National Bureau of Economic Research during the first part of the Biden administration. Kim was Deputy Assistant Secretary for tax analysis in the Treasury Department. Please join me in welcoming to the stage. Ken Rogoff,

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thank you very much for that kind introduction. Thank you to everyone for being here. And of course, it's an incredible honor to give the harburger lecture.

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I you know, need to find out not only his secret to all the great ideas that he thought of both

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in academics and also in policy, but to longevity, it's really quite, quite remarkable man. And of course, you know, it's really one of the founders

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of not only the Chicago school, but I think, brought a lot of great things to UCLA. So what I want to talk about today is remarks about the present, but based on flowing from my May 2025, book, our dollar, your problem

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and there, there's a paperback edition coming out soon enough, with

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some changes, but basically in the same vein. And the title, some of you know this already, comes from a very famous expression, famous in international economics, that John R Connally was the Secretary of the Treasury under Nixon. Nixon, I think, without a doubt, was the closest precedent we've had to Donald Trump. I know you think I'm insulting Nixon, but it's not intended. And actually, if you listen to the Watergate tapes, where Nixon's off the record, except he's recording it,

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amazingly similar.

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Of the ideas he has, and some of the things he said, like, you know, like, who gives a flying F about the Italian lira is like, one line that he says in at some place,

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and

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the United States had been on the gold standard, actually, until the 1930s

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we're on a gold standard

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for a long time. I don't want to get into the whole history The book tells you about that, but we famously went off the gold standard, standard under Franklin Roosevelt, and in particular, changed the value of the dollar from $20 an ounce to $35 an ounce, which meant that you now needed more dollars to buy an ounce of gold. And this, of course, was a default and there's a fantastic book. I'm not just saying it here because he's sitting here. I've written, I think, a pretty glowing review of it at one time of Sebastian Edwards' book, American default, detailing this episode,

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and I just start out by reminding you of that, because we'll see what might happen in the future. So that was a default, but we reconstituted the system after World War Two, where the dollar again was on the gold standard, but not for us. It was on the gold standard. If you were a foreign institution, a central bank, you could take your treasury bills and trade them for gold. And the system, it's called the Bretton Woods system, had other countries. Really wasn't the whole world. It was mostly Europe, Japan, Canada, and a little bit else, but not many others really stuck to this called the Bretton Woods system, where other countries were required to fix their exchange rate to the dollar, and the dollar was required to redeem its currency for gold. So indirectly, we were still in the gold standard. Lots of interesting stuff to say about it. It wasn't a completely adventureless ride, but it worked very well to some extent.

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But in 1970

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as the Vietnam War was going raging on, United States was trying to pay for the Great Society, and perhaps above all, Nixon was planning for the 1972 election, where he really pulled out all the stops on trying to goose up the economy. We went off the gold standard in August

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of 1970 now that was a lot of people thought that would eventually come because the world gold are the US. Gold supply was fixed. The world was growing. At some level, it just wasn't going to work out. Our we needed to have our gold supply growing along with the demand for dollars. And it wasn't. And so there's this famous Yale professor, Robert Triffin, who forecast that this thing would blow up. He was way ahead of his time, but we still call it the Triffin dilemma, and there's a lot of research and thinking about that in modern times, when Nixon went off it, it wasn't a complete shock to economists, but I think it was a pretty big shock to the world, and in particular to Europeans who, back then held gold dollar reserves, kind of similar to what the Asian economies hold. Today. The Asian economies have trillions and trillions of dollars in reserves. It's the what they what they hold in order to stabilize their economies, back their currencies, and back then it was the Europeans. And the Europeans are looking at their dollars and seeing our inflation rate climbing and climbing which had already was going on. Then it climbed more, but it's already up in the 456, percent range, and they were panicked. So Nixon sent John R Connally to

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con confront them. Connally is this colorful Texan. He actually had been in the same car as John F Kennedy the day he was shot and very badly injured himself. Had recovered become Treasury Secretary, and he looked them in the eye and he said, Well, it's our dollar. It's your problem. And I think that phrase spoke to me, first of all, the arrogance of it I don't find very appealing.

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I talk a little bit about in the book about traveling and the Eastern Bloc and living in Europe. During that period. I was a professional chess player at the time, and people just hated Americans. By the way, we were getting there again. I mean, I mean, I was at the World Economic Forum in Davos, and it was much less fun being an American than it might have been 10 years ago. And people are starting to get angrier and angry.

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Career. It was worse back then, and so I didn't like the arrogance, and I don't I don't think it serves us, by the way, in the long run, I think we need allies, not enemies. But also, there's an irony, because it was our problem. We didn't actually have a plan for how we were going to stabilize the inflation rate. And it blew up in the 1970s it was a it was a terrible period.

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And so I think in some ways it, it hearkens to some of the things going on now. I will say I finished the book before I knew who would win the election, and I'm sorry speaking here in California, but I thought Kamala Harris, who I publicly, sort of gave a lukewarm endorsement to, I thought was pretty mediocre. And a lot of the progressive ideology underlying the macro policy, I'm not talking about social policy, I'm talking about macro policy, was incredibly wrong headed, particularly the idea that debt was a free lunch, which still pervades the left and central bank independence was not very popular among progressives, either. It is now, because Trump's against it, but it really wasn't. So in the latter part of my book, I talk about some of these issues and research I've done related to it, and how it might come back to bite us.

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I should say that if you got a chance to read the book, first of all, I hope you find it entertaining. I know you think I'm kidding, but I work very hard to sort of make it more readable. There's some, clearly, a lot of difficult conceptual material talking about the history of the global financial system. But you can see what you think I wasn't writing a book about now. I mean, I was writing a book that I wanted to be around for 10 or 20 years. I'm an academic.

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I knew what Trump one looked like. I did not know what Trump two was going to look like. And when I finished the book in October and started showing it to people, they said, You're nuts, you know, like you're just way too negative here, I mean about what might happen in the future, but happily, my publishing company, Yale University Press, if some of you I know have published with university presses, they're great, but they take forever. They're not very economically motivated, and they take forever to publish, and they waited more than six months to release it. And they released it right after liberation day, where, you know, it was sort of became the book of the moment, because, and people said, Well, why were you, you know, so calm about you, you speak in such calm tone about this going on, you know, wasn't trying to be, wasn't trying to be so panicked.

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I want to just give you a little flavor of where we are with the dollar. The book talks about many issues, real exchange rates, China interest rates, debt sustainability, the exchange rate system. It's not really just about is the dollar going to be there tomorrow or not? But I think it's a way I try to thread it together.

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One thing that it's really not about, it's an easy confusion to make, is the value of the dollar. And this is a graph showing the real which is some measure, the what you can buy with $1 versus its trading partners, and how that's looked since 2006

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this is just downloaded from the Board of Governors. You can find longer graphs and some of my papers and the dollar it went on this 15 year March upward after 2010

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and it's really high now. And I think no matter what had happened, it probably was going to come down in value. But if you look at longer periods, it was really high in 1985 it fell almost 40% it was really high in 2002 it fell almost 40%

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you can be very volatile and yet still be the currency everybody's using. Still be the lingua franca. It's it's a related issue. I talk about it a little bit, but it's not the central it's not the central point. I think one thing that I will say surprised me, thinking of the 1980 me, or maybe even the 1990 me, was how well the United States has done.

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This is a graph of us share of global GDP, starting after World War Two and running through 2025 and it's measured two different ways. There are actually a lot of different ways to measure it. We're trying to measure the share of global income.

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Um, so the way, which is smaller, which actually has the dollar dipping below 15% of global income, is a construct we economists have called purchasing power parity. I don't even want to get into it, but it tries to control for the fact that China and India successfully feed a lot of people, and what would that cost in the United States? And tries to make these adjustments, but I think for terms of global power, the dash line is much more meaningful, which is basically what you can buy with $1 on the global market. And here, sure, the dollar fell a lot, but I mean, the US sure fell a lot. But let's remember the US was the only country standing after World War Two, everyone else had been destroyed. There was catch up. And, I mean, there have been so many books predicting the end of the United States, and it has surprised people how robust it's been. We can come back to that.

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There are a lot of different ways to measure what is the dominant currency. You can look at reserves that central banks hold. They're not really in cash. They're in treasury bills, and central banks hold them in order to defend against crises, to defend their exchange rate, because the dollar is the lingua franca. It's not the only currency they hold, but it's a big share of it. They're measures of how much of global trade is in dollars, how much of financial assets in dollars and on and on. The measure I'm going to show here is from a 2019

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Quarterly Journal of Economics paper of mine with Ethan olszetsky at the LSE and Carmen Reinhart, which looks at what central banks do with their exchange rate regime, and that the our idea is the if a country is really pegging closely to the dollar, the central bank knows what dire dollar liability problems are, what the different links to the dollar are, is trying to weigh how much they should peg to the dollar, and is some measure of dollar centricity. And so in this one, red represents dollar centric countries. I know that should be the communist countries, but it's red. Europe's in there. They're, you know, I think Ethiopia and Egypt are in there. Were on the system. But most of the world really wasn't part of any system. Oranges, the Soviet bloc, China,

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India, wasn't really on anything.

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The main thing to take away from this graph is actually, if I'd done this on a trade weighted basis,

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Europe would be giant compared to everybody else except the United States. This is 2015

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this is what I mark as the peak of dollar dominance using this measure. And again, I'm aware of other measures.

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I think this one, there's a this one's a good portmanteau measure. By the way, I know what you're thinking looking at this

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map, where's Greenland. And actually, in the book, I have Greenland and the chart I have in the book,

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and I one of my RAs noticed that. And when you see how big it looks on the map, well you understand why it's such a bone of contention

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type device. But by our measures, if you look more recently, the last 10 years, there's been some separation. I think there are a number of reasons for that. The biggest one is China was is gradually decoupling from the dollar block. It's going to take a long time for them to complete it, but they know they need to, because we're going to put sanctions on them, and they have to protect themselves. It's it's it's also simply that they had a financial crisis trying to peg to the dollar. And this has sort of been going on for a while. It predates Donald Trump. Now I've been talking about dollar dominance. Who cares, like it's a, you know, it's nice to frame, and we're proud of it and everything. But who cares? And I think there are a few very important reasons we should care. So an obvious one is it lowers our interest rates because other countries borrow a lot in dollars, and also because the dollar market is very liquid. It's easy to trade, and that not only makes Uncle Sam's interest rate lower. It makes your mortgage lower. It makes Car Loans lower. It makes everything lower.

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The lot of estimates of it, but I say around 1% lower for everyone than they would be. That's, by the way, controlling for how much we borrow, because we borrow a lot. So Germany's interest rate.

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It's actually lower than ours by some measures, if you look at the 10 year rate, but they don't borrow as much. So it's we face a demand curve. Sorry, to be technical, but we face a demand curve which is shifted. And obviously there's, like, a lot of calculations and algorithms underlying these

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maps. I'm not going to go into it, but another very big thing is our control of the global financial system. Now, we don't just control that because of dollar dominance. We darn well control it because of our military. Also, I discussed this extensively in the book. It's a big thing the Europeans missed. I think it's a big things progressives miss when they think about you can just eliminate the military and will still be dominant.

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Having a powerful military allows you to control the agenda in many global negotiations that have nothing to do with the military, obviously, with Donald Trump, everybody sees that, but believe me, LBJ,

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Nixon, Ronald Reagan, a lot of these people, you know, Clinton, they darn well did this behind the scenes, threw their elbows around by saying, Well, you know, we do have A basis in Korea, if you're thinking about, you know, doing something else, believe me, that happens and affects the architecture of the system. So there are many advantages. A famous advantage, it's a phrase you might have heard called exorbitant privilege, which is actually kind of mushy.

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It's used in many different ways. I try to be precise of some of the different ways of thinking about it. In the book was first used by French president. He wasn't president yet. He was prime prime minister. Just started to staying he he just abhorred that we have to hold all these dollars under this old fixed exchange rate system, and they don't pay a lot. You take that money, invest it in us and factories and all kinds of things, and you're earning a giant rate of return, and you're getting rich. And he called that the exorbitant privilege. I think, you know, that's probably the most precise definition.

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This picture is not in the book, but it it's an example my I talk about the episode in the book My great aunt, Henrietta, grew up in a very poor family, but was had this dream of making shoes, and she got this idea that she could go to Italy and make the shoes in ways that were just unimaginably cheap compared to what she could do in the United States, and then export them back to the United States. And this is actually an advertisement from McCall's magazine in 1953

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done by Andy Warhol. You may know that Andy Warhol did art like this before then he got the idea, well, I can just take the shoe and sell that for 1000 times, a million, times as much. And sadly, my aunt did not buy the picture, which would have made much more money than her beautiful shoes did. But there were many Americans doing things like that, and you know, that's morphed over time. Andy Atkinson, who is here, has a very nice paper about this. I won't get into it.

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I look at a number of challengers to the dollar, and I'll try to be fairly quick going through this one was Russia, where you think, what a joke. You know, they were never going to challenge us. We didn't know that. And the White House didn't know that. The CIA didn't know that.

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Economists sure didn't know it. When I was an undergraduate at Yale, my textbook, Samuelson, insisted that I was taking this course in 1971

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72 maybe by 1985 latest 89 the Soviet Union was going to catch the United States. And there were a whole bunch of economists who thought this. And it's a mistake we repeat again and again. The fact that the Soviet Union collapsed, I think, is a little overblown, that it had to happen. I won't get into it in the book, but I think if they'd taken some directions that China did more creatively, could have been a different story. And lastly, the historian, Angus Madison, who's one of the giants of economic quantitative history, he said Russia wouldn't catch up. It would end up at, you know, half or two thirds the United States, which, you know, still would have been, I think, quite a surprise. The next big Challenger was Japan. And again, you're a young person. Well, that's a joke, you know. How is that going to happen? Well, if you went back into the 1980s Japan was half the population of the US.

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Don't forget, England was.

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Was a quarter of the population of France when the pound dominated the global currencies, the Netherlands were actually the global currency in the 1600s and they were half the size of England. I mean, there's that's not all. There is to it, and Japan was just killing it in the 1980s

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This is a graph of the value of household real estate, which was worth much more in Japan than all the real estate in the United States at market prices. And I don't think this is a distortion of how it was measured. This is the reality of how the market despite the fact that Japan is a little smaller than California,

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more Amazingly, the stock market in Japan was worth more than adding up the stock markets in the US. It was World traded. That's what the world thought of Japan. Everybody thought that's the direction things were going, and Japan had higher per capita income than the United States by many measures. So in 1985 there's this very famous episode called the plaza, called the Plaza Accord, where we kind of forced Japan using, I think, the security issue quite a bit, forced Japan to massively appreciate its currency. So this is a graph of what happened to the yen between the Plaza Accord, and you can see just one year later, the Yen has almost doubled in value. That's not good for business if you're an exporter. And Japan, I think, did a number of things that led to a much deeper problems than they need to have had.

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Europe is another challenger. I don't have time to explain this because I'm running out of time. But this is a famous, famous book, discussed in the chess Book, book about chess by Steven Zweig, discussed in my book, Europe has done well. They're number two. They could have done a lot better. Europe made some giant mistakes. Number one was France forced Greece to be in the Euro prematurely, and the euro crisis would have been nothing compared to what happened if it wasn't Greece. I back, try to back that up in the book, another competitor is China. And China is a competitor, not just to take a share like the euro, but, you know, they hope to surpass us. They face a big problem in real estate. I have many chapters in the book about this. I had done work going way back about the real estate problems in China. I have a Brookings paper coming out in March comparing the Japanese real estate crisis and the Chinese real estate crisis. And one of the facts that my co author, Yuan Chen Yang, who I don't have time to praise enough, as I should. She's amazing. She's at the IMF. Now, we uncovered that China had built more real estate than per capita than most Western countries. And it's kind of interesting, because everything in China is a state secret, youth unemployment, the vacancy rate in housing prices, everything's a state secret, but gosh darn, they are proud of how much they built. And you can find block by block data on the internet going over 20 years, and that's what we use to construct this, not just for China as a whole, but looking at very articulated city data and allowing us to do a lot of empirical work.

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This is how important housing is in China compared to the United States. And one of the red is the more recent year 2023

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the blue dashed line is 2022,

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and one thing you can see is that housing is everything in China. It's a very, very big share of Chinese wealth. And the fact that prices are dropping, and they're dropping like a rock, even though it's a state secret, is a big thing that's holding them back, but I think in the long run, they'll come up with us to pull up crypto. I don't have time to go into length. Maybe we can pick it up with Kim later.

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But I want to say the global underground economy is huge. It's been the dollar until now, and crypto has been elbowing in. I have papers on that, specifically my own others I cite. This is a paper looking at the size of the underground economy in Europe. It was just published in the journal the European Economic Association, and

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this table is also in the book. But.

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Looking at our estimate of the size of the underground economy in Europe

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using value added tax data, value added taxes collected versus what surveys said they should have collected, country by country, and it actually lines up amazingly well with what have basically been seat of the pants estimates from earlier studies, although my

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Stephanie sancheva, who won the Clark Medal this year for the top young economist under 4040, and under

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she's my colleague at Harvard. She's French Bulgarian, she's actually done papers on the shadow economy, and she was, she was very complimentary of this paper. Gave us great ideas, but she looked at Bulgaria, and she said, That can't be right. It's 20% I go to Bulgaria all the time. It's got to be a lot higher than that of what's in the underground economy. And

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so I have to leave aside the last I've talked about the problems from the outside, we're putting in sanctions, even though I see tons of papers in top journals showing why it's efficient to have one currency. I mean, with network effects, that's actually kind of a no brainer. Of course, that doesn't mean that that's a political equilibrium. The Europeans hate it. The Chinese hate it.

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I talk about this a lot in the book, and I'd say the European side of this has exploded.

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Donald Trump is not necessarily the best thing that's happened to the world. But for my book, he's been the gift that keeps on giving.

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Every time somebody says, well, that point's overblown. You know, he does something. So

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I have some stuff about public debt, and the debt is a free lunch. I won't have time to talk about it. I want to finish with AI. This chart has nothing to do with anything, but I've actually followed AI my whole life. I was playing the top computer chess programs when I was a graduate student at MIT.

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Testing them out, it scared the bejesus out of me, but it took a lot, lot, lot longer to get as good as they did than I thought it would.

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And I think, you know, there's this view that AI can save the world. I'll leave it for our discussion about if that's true, I think that we're perhaps solving one problem with another problem. By the way, this was the only game I played since 1980 it was a one on one exhibition game with Magnus Carlson. I managed to make a draw. I'm never playing again.

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And so anyway,

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so what will happen at the end of this with our debt and

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all the pressures on the Federal Reserve. And I just, you know, wouldn't rule out anything going back to Sebastian's book. We would never default, right? You know, like it depends on what's we'll do whatever is good for us, depending on what the circumstances are. And again, you know, Trump makes things very colorful. I'll finish with my book with Carmen Reinhart. This time is different, which has a big influence on this book looks at a lot of this time as different themes,

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our dollar, your problems, done incredibly well. It was a national best seller, and continue to do very well, but a pale shadow of how this time is different. Did where we reach fourth on Amazon of all books for a week? At one point we were behind the three Girl with the Dragon Tattoo novels.

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But you know, we're going to have more sex and violence in the next edition. So thank you.

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Okay, thanks so much for that. That was really terrific. And I enjoyed your book, and I'm happy to have you here at this particularly appropriate time for this topic. I think one thing you show in your book really is probably related to your prior time as a chess master, in the sense that you're thinking past the immediate

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consequences of Trump's actions, for instance. So if we think about the Trumpian approach to saying, hey, the United States has been spending too much on the military, and we're getting a bad deal, maybe we can extract a little more from the rest of the world. I'm going to take your piece, and you're saying, Well, if you take that piece, then what happens across the board here, like, what? What do we lose? Right? And you have some really nice analysis in the book about how, you know, the exorbitant privilege really does affect regular households, right through our role as taxpayers.

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You know, if we're paying

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less interest on the national debt because the interest rates are lower, that helps with our home mortgages, and it helps with our credit card debt, right? And you see other benefits in terms of soft power. So I take it, it's your opinion, that we're making a mistake by getting

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taking so many steps to hasten the ultimate demise of the dollar. And so I thought what we might start with in our conversation is sort of unpacking the role of different contributing factors to that demise. So some of these things seem long standing. So for instance, the role of sanctions, right

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in the Biden administration, Russia was sanctioned heavily for the invasion of Ukraine. But that you don't need that example. You could go back even further, the Obama sanctions in Iran and so forth, right? And so you could say the world has always had an incentive to move away from the dollar, and that's a long standing thing, fiscal responsibility, as you point out, nothing new, but we do have a lot of new things going on right now, and I'm curious about your thoughts about how to weigh these different new factors. So let me give you five, and I'm sure we could think of more the challenges to fed independence right which have been really prominent further deterioration in the fiscal situation through the one big, beautiful Bill Act and the failed efforts of Doge to cut spending, the tariffs which have really affected every country in the world, and the perception of US power institutional decay, which we might think would encompass things like rule of law and institutional strength and the like, right, and then challenge us to some of the things that we might think of as the US Special sauce, like higher ed or immigrant culture, openness. You know those things, when you think about those things, which do you think are important? Or do you think that this was all a story that was kind of happening anyway? And all that really happens is it just happens a little bit quicker. I mean, I talk about all those things in the book, in the context of Trump, who he I didn't know he'd win. I did not know he'd win. I really did not know, but he talked about all those things. I mean, obviously I had no one had any idea what we were going to be seeing is so different.

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So, you know, first thing to say is, like, there's some positives for the dollar. I'm not saying for our moral health necessarily in the Trump administration. So one thing that's positive is we are, you know, dominating an AI. I personally think we're making a huge mistake not to have some kind of tax on data collection, as some University of Chicago Professor suggested you probably I'm forgetting his name off the top of my head, maybe an article six or seven years ago. You know, having something to slow things down, I think if we're solving our debt problem by throwing all AI safety to the wind to move ahead a little faster, that's nuts. I would also say we're partly solving our debt problem by throwing all concerns about the environment to the win. And if you, if you, if you told Biden, well, Trump's going to win the election. You can still win by getting rid of all environmental protections, because it's going to create a boom. It's fantastic for business if you get rid of environmental protections. I don't, I don't think he would have done it, but he would have seen the point that that that would have done it. So some of these things are dystopian, literally. I don't even know another word for it, but they might be good for the dollar, because everybody's, you know, suffering from Ai, from it's something we inflict on the whole world. But I mean, I think on balance, the long list of negatives is much bigger. So,

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you know, I will say I was in the World Economic Forum

39:07

last month. I have never seen the Europeans like they were then. Never they were so angry. And I'm sort of getting, you know, communications and vibes that something's changed there. Something's not going back. They're just not going to trust us in the same way. And yeah, we say we'll never do it again. We're just kidding. Nobody thinks we were just kidding about that and the rule of law. I mean, if you're French and you put your money, and I don't know, you buy an apartment in Los Angeles, okay, maybe you get treated like an out of state resident, but you think it's not going to be worse than that? No, you don't know. You know what, what's going to get done there. A lot of you are wouldn't be following this, but Trump's.

40:00

The first head of his Council of Economic Advisors, Steve Moran,

40:05

put put out this paper called the MAR a Lago accord, after the Plaza Accord, which I mentioned, where he said, that was the great we crushed Japan. Let's just do that to everybody, you know, and then we'll be way on top if we do that to everybody, and it involved a lot of very aggressive policies I won't even get into. So wow, I'm glad you mentioned universities. I mean, that has absolutely been part of our secret sauce. I think I'm quoting something from Forbes, and it means it might not be true. No offense to Forbes, but, I mean, I, I haven't This isn't coming from a research paper where, you know, the claim was made that half of all

40:49

American companies are run by an immigrant, or this the child of an immigrant. And you know, I, you certainly see that. See that here, there's some flavor of that that's true, and what the university systems just been a feeder to that, and then suddenly we're, we're at war with the University says, I would, I, by the way, I believe they're profound problems with the monoculture that prevailed in American universities. But you're throwing out the baby with the bath water this way. So it's what do you what do you think is the couple worse things? Well, I think

41:29

three leap to mind, really, but it's hard to choose between them. Maybe we should talk about the Fed first. I think that's a big one, because if you think about the strength of the dollar, it's intimately tied to how many dollars there are, and Trump has made, no, you know, secret of the fact that he'd like a lot more control of the Fed. And so I think that's a big one. So let's start there, but we can go to tariffs and Greenland in a second. But I think, I think progressives didn't like the Fed either, and you can read that in there. They want to have a central bank digital currency that soaks all the money out of the banking system, and then, at least in some versions of it, the government decides which sectors they're going to lend money to. And even the mission creep that happened, that I'm

42:16

criticized very heavily, that took place under particularly in the Biden administration, but it happened before where you got it. The Fed is supposed to deal with social justice, inequality, the environment where it doesn't have the tools, it doesn't have the political legitimacy, it undermines it.

42:36

And I'm not saying worse isn't coming, but yeah. I mean, if you go back to Nixon, you took away the gold standard. What have you got? Central bank independence. Take away that we don't have anything, and that's very important, as you pointed out from your earliest work.

42:52

But I wonder what your forecast is for what will happen here. So if we think about, for instance, the firing of Lisa Cook, which is still, you know, being contested, but it looks pretty good for the court, but also these

43:06

Department of Justice investigation on Powell, right? And I could see that going one of two ways, right? In a way, the Fed culture is very strong, right? It can walk and chew gum at the same time. So even if their, you know, mission is expanded, they can still keep interest rates where they think suit the national interest. But when you start talking about removing a bunch of Fed governors, right, or challenging each of them with legal suits, right, that could either put so much pressure on the Fed that they become less, you know, independent, or one could also see it maybe backfiring. So for instance, it's normal for a Fed chair to leave when they're no longer chair, but you can stay on as member of the board. Maybe Jerome Powell stays right. Maybe the rest of them, you know, feel even more determined to stay independent, because they see that they're kind of the last bulwark, right? So I could kind of see some of these Trumpian actions actually furthering, in a strange way,

44:04

the prospects for independent monetary policy, including the ability of Congress to defend that. But I'm curious your take. No, no, that's very, very I think you framed it very well. I've been fairly concerned that he was going to take over, and the you may not have followed this, but

44:24

the Justice Department subpoenaed Powell for, I don't know, corruption or something, because the Fed spent too much on a building. And, you know, we'd have to arrest a lot of people if that was going to be the case, but, but that was now, I think that was never about Powell that was sending a warning shot. Here's this person who controls the FBI, and I mean, really controls. He has a mega, top level control of the FBI, of this the CIA of the National Security Council. He.

45:00

Can see every email you ever wrote. I mean, if he's willing to do whatever it takes, you're sitting there, you know, at some point, it's, I think, takes a lot of courage at some point to stand up to it. And I, you know, fear that he will, he may prevail in that. In the long run, I will say the Kevin Warsh appointments surprised me. I've known Kevin Warsh forever. I respect him very much. I if I had to say one characteristic, he's not Maga like in particular, I may be missing something I don't think he's ever said that Trump won the 2020 election. Is there anyone who got appointed without saying that? And you know, he may have said he's going to cut interest rates, but I didn't hear him say that Trump won the 2020 election. And you think I'm being facetious, but there are things coming up, battles to come, and I'm going to pick a kind of in the weeds, one that's very important. One of the things the Fed controls is in a crisis, emergency loans, not just to

46:02

our own our own companies, our own governments, but to foreign governments, because we've dollarized the world, and when there's a crisis, the dollar markets are starved, and they can't print dollars, and we make loans and dollars, it's actually been very good for promulgating the use of the dollar, that if we you run into a corner just because you're short on dollars, some day, we'll give it to you, and now we could hold that back. In fact, he doesn't have to wait for a crisis. He can say, you know, if you don't let US troops go into Mexico, forget getting a swap line. That's what they're these loans are called, forget about it, and you'll have a crisis in Mexico right away if people think they can't get that. And you talk about information, the Fed can regulate every bank, and therefore every bank sees all the information you and I have, I can go on and on. So there ways that you could be concerned beyond monetary policy and again, Kevin Warsh, I just have to be honest, was surprised me. I didn't think he'd do that. So maybe that's something little bit to be feel good about, but we'll see.

47:18

So let's talk a little bit about the initiative and the hurdles to this initiative for other countries moving away from the dollar. So I think the tariffs combined with threats on Greenland and other threats that have been kind of cast about by the Trump administration, but I think the Greenland one was taken more seriously. No doubt you felt that in Davos,

47:41

but a lot of that leads many around the world to say, Okay, well, we need to diversify even more than we thought, away from us, military production away from us, financial assets away from us. Power, right? But part of what holds this back as you discuss in your book and in part of the slides today is the absence of a compelling alternative, right? Like, there isn't like another, like reserve currency. That's really obvious. It's not clear you can trust an authoritarian government in China with your financial assets. Europe doesn't always have their act together. Crypto, you know, is new and confusing, and you know, there's some elements. Of course, the the underground economy can go there, but it's not clear that everything can go there really easily. So how do you see this tension between a strong desire to, kind of like de risk from the United States, but also the the very difficult, you know,

48:37

if we were to go back, I want to really just say a little over 15 years, and we were to come to a conference at UCLA or the NBR, everybody thought we were going to a multipolar current system. The Euro looked like it was doing great, and it was doing great. There was actually more Euro debt than dollar debt back then, which many people proudly pointed out, thinking that was great, which didn't turn out to be an unalloyed asset.

49:09

And you know, they made some mistakes, but they can regroup and come around these mistakes. You don't have to replace the dollar. It's a matter of taking market share. And China, they're simply going to do it. Half of their trades in RMB now, 0% in 2010

49:25

so there's various parts of homework they have to do.

49:30

Europe's easier. They just really, in Europe, need to have a bankruptcy code across Europe. I'm in a lot in a lot of legal scholars here. They have to do that,

49:43

and they also need to develop their own sorry for the jargon rails for international transactions. You want to do international transactions without ever touching the dollar, say, between Argentina and France. That's amazing.

50:00

Only hard to do now, and that really not very expensive to produce anymore, using modern technologies. And I think there's a very real chance Europe and China will develop transactions technologies that are as good as ours, maybe superior, fairly inexpensively. And they're, they're suddenly, you know, racing ahead to do that.

50:24

You know, again, if I were just to write down an economic model with no political economy, you get one currency. But people look at the weaponization of the dollar and what we're willing to do, particularly under Trump, but we had been doing it under Obama, you know, before then, and that, you know, there's a lot of incentives to move away from it. It's not it's not cheap. But, I mean, you know, it's not that expensive, either.

50:53

And you said earlier that you want to talk more about crypto and stable coins. So this is your opportunity. Do you see those as a viable

51:02

off ramp.

51:04

Well, I mean, we can regulate them. We're very aggressively in the United States trying not to regulate them, but that's crazy. We need to regulate them. So

51:19

Bitcoin was actually used very significantly for illicit transactions. For a long time, it's been replaced by stable coins. But the reason it's been the reason it's been replaced by stable coins, is the stable coin is a asset. It's like a cryptocurrency, but fixed in its value to the dollar. So the typical ones are like one to one against the dollar, but they're also kind of similarly untraceable, and so great people like them. We put in the genius Act of, you know, trying to regularize them, but it's crazy. I mean, you want to be able to audit transactions, not everything. The government shouldn't see everything, but we should be able to, if you

52:07

you're they want to see if you're evading taxes, they should be able to look at the books, and if you're using stable coins, particularly tether right now, but to some extent, even some of the cleaner ones, it's very, very hard to do, and it could be a long time before we do, once we make those

52:28

auditable where we can see it, and we will eventually not necessarily in this administration, then I think Bitcoin and the other cryptocurrencies are sitting there in the wings, and it is finally what you might say. What could we do to regulate Bitcoin? It's like this entity, nobody, no government. You can't regulate what's called on chain transactions, the one you read about, the cryptographic ones, but you sure the hack can regulate the banks that surround Bitcoin. In fact, I'll just list Bitcoin, but I could say the same thing about Ethereum

53:05

and their currency.

53:07

Most of the transactions are done basically by banks. Coinbase is a crypto bank in the same way bank America holds your cash and in principle, just is traceable, and if you were to regulate those,

53:24

and I would say you could eliminate them,

53:27

you take away the network effects. And if you take away the network effects, you take away the use and the value. So there's, you definitely can regulate Bitcoin. There seems to be no appetite to do that. At the moment, I think we're going to find that this was penny wise and pound foolish.

53:45

The genius act that Trump passed is a little bit like saying, why don't we issue $10,000 bills? Because that would be really popular. We'd save on interest. Well, you know, we actually used to have $10,000 bills. Nixon got rid of them, and we figured out, oh, they're being used to avoid taxes, to do all sorts of illegal stuff. Maybe we're saving some interest, but maybe not such a good idea. And I think it's the same here. And I don't want to be totally negative in the sense that I think the technology is maturing. It may end up in the banking sector, but at the end of the day, whatever government's issue, whether it's Europe, whether it's the Fed, whether it's banks, whether it's private companies, it you have to have regulations where you can audit it. Darrell Duffy, at Stanford has a paper showing how to do this. There are a number of others. I mean, it's it's not very hard. But of course, they don't want to do it

54:42

very interesting. So at this moment in the economy, I think a lot of people wonder why things aren't worse, right? I just described all of these shocks that we've been subject to, and you know, one answer to that is, well, AI is propping us up, right? We've got all this AI.

55:00

Investment, we have this hope of AI productivity, the stock market is relatively bullish based on hopes for deregulation and favorable tax environment and getting rid of regulations. And so that's like kind of an optimistic story. But it also strikes me there's a seed of vulnerability there too, right? AI has financed a lot of it with debt. The profits may come slower than the debt has to be repaid, and then we've got all this structural vulnerability here. So when you look out over the next couple of years, do you think the probability of some sort of crisis in the United States is, you know, small, medium, large. And, you know, I know that we don't have a fixed exchange rate, so we're not going to have the kind of, like sudden stop crisis. But what role would the dollars depreciation play in any such crisis?

55:48

So I've certainly been surprised. The economy has been as robust as it has around all the chaos. And I think, you know, people be mostly would be lying to say that they're not surprised by that, and to the extent I can rationalize it, I would say all the things we think are negative are negative, but there are some things that are positive again. I mean, I think I mentioned this, if you eliminate all environmental protections, that's kind of great for companies. I mean, you know, you save a lot of money

56:21

if you eliminate all safety protocol on AI, which seems to be what we've done, I think there are lots of things we could do that would push in the other direction. Well, it's great. AI companies feel free to plow ahead. So Trump very early on, put an executive order. Don't worry about copyright protection. Don't worry about intellectual property rights. Don't worry about law certs. Don't worry about anything. Don't worry about environmental protection, which you'll need for electricity. No worries. Well, you're going to grow and measure GDP, but you're going to create a lot of problems down the road, and I mentioned the environment a number of times. But I also think,

57:06

you know, near term, I, I know I'm some people won't agree, but I think social media has been a curse on society, and it was nice for a little while, and the negatives just vastly outweigh the positives. And it was just, you know, historians will look at as just the stupidest thing we ever did to not regulate social media. And AI is social media times 50, we're interacting with social media, the mental health, political divisiveness,

57:36

unemployment. Now that's a debate you have. You know, economists here right, probably on both sides of this, but I just want to say that I think it's move. If you move at this speed, there's no question the job loss is going to be staggering. Trump came into office saying he was going to bring middle class jobs, and I good paying middle class jobs, and I think the legacy is going to be a huge loss of good, paying middle class jobs, maybe hours

58:05

among them. Not it's not all lost, necessarily, but I think, you know, we're monopoly. We used to worry about enforcing monopoly. Now he does, if somebody doesn't do the right thing, but we've sort of pulled

58:24

Lina Khan was a very,

58:27

let's say, controversial figure at the FTC, but I thought had some good ideas in the right place. And boy, you know, that's history. Gary Gensler, you know, is considered the devil. He was trying to regulate cryptocurrency, and that's all regulation. We're getting rid of all regulations now, I kind of think we were overdoing it in the Biden administration, and they're great examples. But the trouble is, you know, you want to curate them some So, yeah, of course, the economy is going to grow. I think I predict that you will see labor share fall and fall and fall in coming years, and you know that they're able to lay off workers. Profits are going way up. But a lot of things young people worry about, like the environment dystopian AI we should worry about we should slow things down and but I think that's why things look so good now, and I don't know when the chickens will come home to roost. Yeah, me neither. So I'm going to go to audience questions soon, but I want to ask one final question, which is, let's take an optimistic view and assume that the next President of the United States is the highly technocratically inclined, competent centrist. We're living in a parallel universe. Let's just imagine that. What would your advice be to this hypothetical President Carney of the South if you were.

1:00:00

Going to say, Okay, we can't really undo this. We can't go back like we've already lost a lot of soft power with the rest of the world. We've already lost some of the exorbitant privilege. But what can we do to maybe, like, shore up or slow down this decline? Would you have an agenda to suggest to such a person? I mean, you know, there plenty of good centrist agendas. The trouble is, if the public's not convinced, there's very little traction, it has very little lasting value. Somebody was asking about the internet. Somebody was somebody was asking me if there any leaders that listen to economists right now. And actually, I mean, if I were to name one, Macron seems to talk to a lot of economists. The trouble is, the public doesn't listen to Macron, the president of France. And so, you know, how can you get traction when we have social media where negative ideas, you know, resonate so powerfully, and frankly, even a lot of the quote, unquote intellectual discussions very oriented towards social media. So what if you landed somebody who was a centrist

1:01:14

in the middle of the presidency, they miraculously got nominated and elected? Would they have any power? Would they have any traction? I mean, I think, I think it's going to take 2030, years to come back from this. Well, that's depressing. Okay, so, from the audience, Sebastian, Thanks, Ken for

1:01:39

a great thanks. Ken for a great, great talk and a great book. I was not going to ask a question, but now that you mentioned Macron,

1:01:48

talk to us about Mark Carney. He is an economist, and everyone was impressed by his I don't know if you were in the room, but I'm sure that you heard the speech. Tell us a little bit about Mark, who's run central banks and now he runs a country.

1:02:06

That's my dream, by the way.

1:02:11

Yeah, no, he's, he's done an amazing job.

1:02:15

There's actually a story about him in my book, but I don't name him because I didn't want to.

1:02:21

He's, he's, he's, you know,

1:02:25

trying to push back, but,

1:02:29

you know, let's remember that when people talk, when they were talking about Greenland, the next one was Iceland, and after that, Canada. So if he wasn't going to speak up, nobody was going to speak up about what the problem was,

1:02:43

you know, Canada. The Europe's embracing Canada. They're thinking about bringing Canada into the Europe, into the European Union. I'm slightly exaggerating, but they're looking at, you know, strengthening ties with Canada, you know, having these coalitions of the willing. But it's very damaging. What if the United States is not on board it? We are just so dominant. The last 15 years, we have just taken off. I mean, you can list statistics. I think we are 70% of global stock markets at the moment. We are some massive percent of the total bond supply.

1:03:25

It's just not that easy. Europe in particular,

1:03:31

which, by the way, I sometimes facetiously describe as California without Hollywood or tech, because it's politically very similarly oriented, without the traction. They don't have electricity, they don't have AI, they don't have a military you know, they don't have financial rails, as I've been talking about. They got, they've got a lot of homework to do. They have a lot of smart people. Of course, a lot of them are living here, you know, now, because they have a tax system which is punitive if you want to have a really successful business. But, you know, I'm very constructive on Europe, and I have been my whole year of since I've been talking about the book.

1:04:13

You know, there's this famous saying, which I, most of you know, attributed to Churchill, which is, Americans always do the right thing after they've tried everything else. And I think, actually, it might be apropos of Europe today, I do think Europe's going to get its act together. I don't think you know it's going to disappear, but it's going to it's going to take time.

1:04:37

So

1:04:38

Mark Carney is a great man, but it's Canada. And, you know, I mean, there's mean, you know, Gavin Newsom can give a great talk, but it's California,

1:04:55

in the back with the blue shirt. I.

1:05:04

You. Thank you for your talk. My question was, BRICS, and how far do you think they can push, or if are they actually a competitor or a threat to the dollar at the end of the day? Well, I mean, BRICS is the RMB. There's not going to be Brazil's not going to have any say over the RMB, and they're building the networks half of China's trades and RMB, they're working on financial transactions. So you won't be using the RMB here at, you know, the Student Union here, but you might be using it in a street market in Africa you might be using in Latin America. China is, by many measures, the world's biggest trading nation. They have a lot of power, despite the fact that they are an authoritarian government, and their reasons not to trust them, their reasons not to trust us either, and a lot of people want to hedge their bets. If China made their bonds easier to hold, there'd be massive global demand for them right now.

1:06:15

Other questions

1:06:18

here in row, two here, my

1:06:20

mark

1:06:23

fly from Brown spoke here in the spring, and his prediction was that what Trump was doing was turning us into a carbon dominant economy and abandoning green technology and green energy, which in 10 years, would push China and Europe closer to collaboration on green energy, and leave us at the end of the day with not much to offer, because we have sunk all our money and and not much and and have abandoned the energy that will affect the economy and also all of the AI centers for building. So I was just wondering what you think that would do to the economy, if that's a reasonable vision, I kind of worry that the opposite is going to happen, that what we're doing is putting a lot of pressure, particularly on Europe, to just do something right now, to compete. Somebody had a cartoon I saw somewhere. This was about the militarization Europe, building up its military. You know, with maybe it was Macron saying, doesn't Putin realize we need 10 years to get ready.

1:07:35

And when you talk about what's going on in AI,

1:07:39

I again referring to something where I set the World Economic Forum. I got dragged into seeing Trump speak, and I don't like seeing any politicians speak, by the way, I just have attention deficit syndrome. But a moment that really struck me was when Trump said, we're going to dominate an AI.

1:08:00

And this was, you know, the World Economic Forum is very green and European and everything. And then he follows and says, and to do so, we are going to double electricity production in the next four years. And I turn around, look at the European leaders. Their faces turned white when he's out of fear when he said that, and I I'm not sure that that's the direction. I'm not sure the direction the world's going to go is that Europe and other countries are going to say, well, we're just going to win at the end of the day. I think a lot of them see themselves as losing very big right now, not getting to the end of the day. So the pressure we're competitive pressure we're put if we're polluting and we're producing stuff, and we may, we may try to

1:08:52

lose my micro, no, just,

1:08:56

yeah, we're doing that. It's a lot, and we're, we're so powerful in the global trading system. It's a lot, it's a huge negative for everybody. So

1:09:07

I, you know, I'm not sure we're going to get this utopian future.

1:09:13

I mean, right away we I mean, there are innovations. It's going to come nuclear power, green technology, but yeah, this could be a long road there with I didn't get to show my slides on the military. We're looking at a huge global military buildup.

1:09:31

And, you know, there's all this sarcasm about the Europeans building green tanks, etc. Right? Anyone

1:09:40

else? Yes, row four here, gray.

1:09:46

Hi Professor. Thank you for your speech. I'm shooting from the consulate general of China. I have a question about, what is your view about the dollarized world, because, in my observation.

1:10:00

In several pillars of the dollar has been weakened, such as us, are less and less willing to provide to public goods, and also global confidence in the Federal Reserve may be a shaking. My question to you is, the first one is, what is your view about the perspective of a de dollarized world? Second question is, are there any advices for the internationalization of RMB? Thank you. Well, I don't think there's any question that Trump has been good for your team in terms of international cooperation. Europe's moving closer to China. Canada is moving closer to China. People want to trade, and a lot of the trades are reflowing. I don't think there's any question. And the internationalization of the RMB, the resistance has come from the top. Historically, the technocrats in China have wanted to do that for a long time. And if President Xi is saying he wants it. I think the technocrats had figured this out a long time ago. I mean, there were reasons not to do it out of fear.

1:11:17

But you know, I discussed the major steps you need to you need to make the RMB freely convertible. You can't be the international currency if you can't get it. And you don't have to be able to you don't have to have completely open capital markets. We didn't have completely open capital markets in the 50s and 60s. But you have to be able to buy Chinese treasury bills and sell them. There have to be forward markets. There have to be sophisticated markets in these things. There are reasons the government's resisted that. I don't want to get into it, but this is going to happen. And if President Xi says it's going to happen, and I can tell you, for 20 years, the technocrats have wanted it to happen. It's going to happen, and it's a question of how smooth will it be. There are risks, but there's a very big benefit

1:12:11

to China in terms of gaining more power and independence. I'm an American, and I'm not rooting for the United States to go into decline quicker than it has to. I have concerns about China, but yeah, as I said at the beginning, I mean, Trump has been good for Team China.

1:12:32

And one final question, row two here.

1:12:40

Thanks for being here. So when I talk to policymakers, I find that they're not very responsive to the issue of rising debt and its impacts on interest rates, like at all. And you know, part of the reason might be that we actually, in our experiences, in the US, we don't quite see those impacts happen even though we have rising debt. So I'm curious to know, like, your thoughts on what are the conditions that might trigger a response and how that might play out, whether it's like a shock or whether it is really just a boiling frog issue, and it's always going to be this way curious to know your your sense and intuition on like, what are the types of things might trigger that so one of the big issues, I'd even say motivated me to write the book was I'd been doing research on the long term history of real interest rates, and they'd been very low in the 2010s the long term real interest rates had been negative at times they'd average zero over 2010 through most of 2022 and I went around The World debating Paul Krugman, Larry Summers, Olivier Blanchard, actually, you can find a debate of mine with Peter Thiel on this at one point. And I said, you know, look at history. Interest rates have sometimes low until they're not, or they're high until they're not. You're extrapolating, you know, based on very short history. It's very much the theme of my book with Carmen Reinhardt. This time is different. I think we're in a more normal, real interest rate world. They've moved up a lot. So debt has risen massively. Interest rates have risen even more, and interest payments now have gone from a third of that. I'm sorry, interest payments have gone almost tripled now in a very short space of time, they're the second biggest part of the budget

1:14:29

with inflation. That's a bit of an exaggeration, but nevertheless, I mean, the problem is, in recent experience, it hasn't been a problem, but now it is the Trump administration, I think, acknowledges that

1:14:45

they wish interest rates were lower, but I think a lot of the economists kind of realized that that might never come and they said, Well, don't worry, we're just going to grow to the moon. So it'll never be an issue. But the strategy for growing to the moon has been you.

1:15:00

You know, forget the environment, forget safety, forget monopoly, forget regulating anything. Well, okay, you solved your debt problem for a while, but at the cost of things that could be much more expensive in the future. Thank you so much. Applause. You.

Transcribed by https://otter.ai