What They’re Not Telling You About The Future of Money

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1:34Hello, I'm Anthony Scaramucci, and this is Open Book, where I talk to some of the brightest minds about everything surrounding the written word. That's everything. That's from authors and historians to figures in entertainment, political activists, and of course, Wall Street. Before we dive in, make sure to follow or subscribe wherever you get your podcasts. And don't forget to leave a review. Good or bad, I want to hear from you. I want to hear whether you're enjoying it or where we can improve. And I can take the hits. So let me know. If you don't like something, say it straight. Now let's get into it.

2:17Welcome to Open Book. I am your host, Anthony Scaramucci. Joining us today, a bestselling author, New York Times bestselling author, professor ken rogoff he's a professor of economics at harvard university and a former international monetary fund chief economist the title of the book our dollar your problem an insider's view of seven turbulent decades of global finance and the road ahead what a what a great title though our dollar your problem ken it's always a pleasure to be with you i'll be saying before we dive into this book, which is very timely. Our listeners may not know your full background.

2:56We get a lot of young people on this podcast. So before the Harvard chair and the IMF credentials, give us a little bit about your journey and what shaped your view of global finance before you got into those more august positions. Well, I worked at the Federal Reserve. That was my first job as an economist. I was a very junior economist. I think I met Paul Volcker. He was the chair once when I accidentally sat in his seat at lunch and he is like six foot seven and I'm looking up, you know, that's my chair. But I didn't have a lot of other influence, but I did. I wrote the first paper about why you should have an independent central bank back then.

3:39And then other things, but I had the office next to Ben Bernanke. He was the Fed chair later at Princeton for a long time. Actually, in graduate school, we were office mates. And then I was a professional chess player in my youth. I represented the United States in the World Chess Championships, if you can believe that. That was a long time ago. I first met you actually at the World Economic Forum. I came to hear you speak a few times. And then you wrote a great book. This has got to be 15 or 16 years ago now called This Time is Different, which is about the centuries of financial crises and how we handle financial crises.

4:21And it really influenced my investment theories. And it was, you know, your suggestions about the Fed centrism and so forth in the book really helped me and probably other macro investors see the post global financial crisis landscape. And so now this book, I feel like after reading that book a long time ago and reading this book recently, I feel like they're bookends in some ways. I just want to test that theory on you because we did something to the dollar. We used our flexibility, if you will, with interest rates, operation twist, quantitative easing, et cetera. And it's now put the rest of the world in a little bit of an imposition.

5:05And you have a great quote in this book, which actually becomes your title of this book, is from John Connolly. And for those that may remember John Connolly, in addition to being a former Treasury Secretary, he was also wounded in the Kennedy assassination. He was the governor of Texas and wounded in 1963, November. But one of the lines he had was the dollar is our currency, but your problem. Why is this so relevant today? and take us, if you don't mind, from the first book into this now aftermath of the financial crisis 15, 16 years out. This absolutely is a follow-up in some ways to the first book and about things that have happened since.

5:47And the title of the first book, this time is different, it's supposed to be ironic that people say, oh, don't worry about inflation. It's never going to happen again. China's growing to the moon. Hey, they're never going to have a problem. Look at how great they run their country. And something that's very pertinent today, even beside the dollar, is interest rates are super low. They're going to be super low forever. So I certainly hit on these themes where, I appreciate your history shirt, by the way, where people look at, you know, 10, 20 years, and they think they've looked at everything that could ever happen.

6:29But a lot of times you need a longer arc of history because of the global financial crisis that was 2008, 2009. I can't tell you how many economists said that could never happen. It happened in the Great Depression, 1930s, never going to happen again. And then winding up to today, you know, that the U.S. can never run into problems with its debt because that never happens. But it did, you know, back in the 1930s. So, yeah, I mean, I think it's very important. It doesn't mean we know what's going to happen looking at history, but I think if you don't look at history, you forget what could happen.

7:06I agree with all of that. I guess the thing that vexes me is we have these policy decisions that make it easy for our politicians. And I've heard you on other interviews. And I was dying to ask you this question. Will there be a Fed? And obviously, there's a Fed right now that's being somewhat resistant to the Trump administration, doesn't want to get steamrolled by the Trump administration, wants to stay data dependent. But I would say the Fed, sir, and I would say the corruption of the dollar, if you don't mind me saying it that way, the Fed has given the politicians a little bit of an easy way out over the last 15 or 20 years.

7:47Is that just going to be the thing that happens? Will there be something deus ex machina that changes that? Or if you disagree with my observation of this, tell me why. No, I think you're right. I don't think it's easy for the Fed to exercise its independence year in and year out when it's really under attack. And obviously, you know, with the Trump administration, he's very blunt. He doesn't just say, I want Powell out. He says, I want to run it. I think I know better, not just than Powell, all the governors on the Fed. You should listen to me. And, you know, that we could be right. I mean, we never know.

8:25But, you know, it's a recipe for disaster. And the Fed has has bent over the years. So the when the title of the book, Our Dollar Your Problem, comes from this period where we went off gold completely. We were kind of half off it, but we went off it completely. And that just led to the 70s. We got this huge inflation and the Fed bent. They accommodated it. And you're absolutely right that under, you know, the last 15 years, they've I don't want to get into the weeds here, but they basically bought up treasury bills by the trillion. And that's held down interest rates. There's no question, but it doesn't work forever.

9:05So they bent to the government's will. But now, you know, the government wants more. And just lastly, independent central banks is a new thing. It's not been around forever. I actually wrote the first paper on it, believe it or not. And, you know, politicians have never liked it. The left doesn't like it either. If Harris had won and the progressives had had their way, they wanted to get rid of the Fed too. So, yeah, I'm worried about it. I think the, I don't know, I guess I'm a Wall Street-centric person. I've spent most of my life on Wall Street. I feel like the independence of the Fed is something that is sacrosanct on Wall Street, which is why I think guys like Vicente and others have gone to Trump.

9:50Steve Schwartzman has gone to Trump and said, knock it off, where Trump is now saying he's not going to fire Chairman Powell. But I want to play a very smuggy, I'm going to do some improvisation with you, I'm going to play a very smuggy politician slash Fed economist. I'm going to test something out on you. I want you to respond to it. Okay. Okay. And so this is the what me worry, smug Fed economist or a politician. What me worry, there's no other country like the United States. We have a 50 state free trading bloc, single currency, lots of flexibility in the country, lots of economic dynamism, lots of innovation.

10:29that Chinese are not going to be the dominant currency. The euro is really, let me just sniff at the euro for a second derogatorily. It's a quick exchange rate mechanism more than it is a unified currency. And so what me worry as an American politician or a smuggy Fed economist about the potential demise of the dollar? What am I missing? Obviously, I'm setting this up for you, Or what am I missing as Mr. Smug in terms of my feeling about America? I love your doing that because part of what really motivated me to write the book is I read the smugness, not just from politicians, but economic commentators.

11:12We are the greatest. There's nowhere else to go. But, you know, we have the 70s when the dollar, Europe was the center of the dollar block in the 19, you know, just before then. we didn't have China. We didn't have Latin America. It was Europe. We lost Europe. We've lost it forever. We're, I think, going to lose a bunch of Asia if we screw up, which is half the dollar block. In the 1930s, we defaulted on our debt, a something when we write the history books, we say we didn't, but we changed the price of gold from$20 an ounce to$35 an ounce. And if you were in London or in India holding dollars, kind of felt like a default.

11:59Of course we've default. And that Supreme Court ultimately ruled it a default. So, you know, there's this idea, again, not looking at history, that we just do whatever we want. We can run our debt to the moon. We can get rid of Fed independents. They're never going to get rid of us. It doesn't mean somebody is going to replace the dollar. That's not what happened in those episodes. But we lose a lot of our market. That means our interest rates are higher and our ability to use the dollar for sanctions and all this other stuff also drops. So we would feel that. And I think it's something that might have been going to happen anyway over a couple decades.

12:39But Trump is an accelerant of that process. There's no doubt about it. You ever realize that you need to hire somebody yesterday? That's definitely happened to me before, and I wish I had used Indeed. When it comes to hiring, Indeed is all you need. Stop struggling to get your job post seen on other job sites. With Indeed's sponsored jobs, your listing jumps right to the top, so the right people actually see it, and fast. In fact, sponsored jobs on Indeed get 45 % more applications than non-sponsored ones, according to Indeed data. One of the things I love about Indeed is how fast it makes hiring, And if I had this back then, I have saved several weeks of stress.

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13:55Fed, U.S. dollar? Is it more of the same? Are we going to be able to print two to three trillion W, another 10 to 15 trillion dollars of deficit spending? Are you able to do that at infinitum? You've written about and I've heard you speak about the corrosive effects of inflation and the regressive form of taxation that inflation represents. So, you know, take us out five years. Tell me where we are or tell me where you think we could be and what we should be worried about. Five years, and I'm happy to come back on in five years. But I think in five years we will have had some form of debt crisis.

14:33And it'll either take the form that instead of the Fed buying up$7 trillion in debt, they're buying up$25 trillion in debt, which is basically what Japan did in their situation. We could have a burst of inflation. We could partially default on some of our debt, which Trump cabinet has talked about. But I think we're going to come under pressure. Now, Jamie Dimon, I'm sure you know, said we're going to see a crack in the bond market. And I think he's right that at some point there'll be some what we economists call non-linearity, you know, some sudden event. But I think what will happen before that is interest rates, long-term interest rates, are going to start creeping up.

15:20And Trump is president. He's very blunt, as you well know. But I think whoever's president's not going to like that. and then we start getting closer to what Jamie Dimon is talking about. But I think it will have happened within five years. I mean, in the book, I said five to seven years. I would have rather you threw me seven years. But I think five years, more likely than not, that's going to happen. And it's not going to be pleasant for us. It's not going to be pleasant for the world. I want you to react to this story. I was doing a little research. I grew up, as you know, in a blue-collar, working-class family.

15:57And a lot of working class people don't understand inflation because, you know, the number goes up. So in other words, if my parents buy a house for$16 ,000 in 1962 and Zillow says that their house is worth$750 ,000 today, they feel richer. But I said to my parents over the dinner table, your house was 457 ounces of gold. Gold at$35 an ounce in 1962. Today, I could purchase that house on Zillow for 250 ounces of gold. It actually goes down in value from a gold per ounce perspective. And when I told my parents that, they got mad at me because, again, they want to feel the inflation makes, even though they're not richer, and even though the purchasing power has been woefully skewed since we took ourselves off the gold standard.

16:53nerd. How do you explain inflation to people that are not economists? Obviously, I majored in economics at Tufts. I've been in the markets for 36 years. You're one of the seons of economic theory. How do you explain it to somebody that is not us? Or how do you explain it to somebody as the man or woman on the street? Okay, not an easy question. I will say on the gold, which is an easy question, when Franklin Roosevelt put it from 20 to 35, people thought that was scandalous, making the dollar worthless. I don't know what it is as we speak, but it hit a thousand times that recently. Yeah, it's 3 ,000.

17:34It's 3 ,000. 3 ,000. Yeah, I mean, just incredible. And you could point to a lot of things of how much inflation we've had. So, you know, their prices go up and down. It's hard to control it exactly. Where we get concerned is where everything's going up. It happened in the pandemic. It happened in the pandemic. I mean, we saw pretty significant inflation, not as bad as in the 70s, believe it or not, but it was pretty significant. I think what people have trouble with is that, you know, you go like the price of paper towels goes up from$10 to$25. And then it stays that depends on where you buy it, like$18 or$20.

18:20And the Fed says, it's great. We solved it. And we said, what are you talking about? It's not $10 anymore. I don't feel like you solved it. So I think it is very upsetting, even to me as an economist and I do go grocery shopping. I just can't get used to it. I know. I read the numbers. I know how much inflation went up. I kind of know. And by the way, believe me, my salary at Harvard did not go up that much. But yours maybe did. But, you know, I look at the things and when's it going to come down? I buy a loaf of bread. It had been this exact same loaf. It had been $3.50. And I just went and it's$6.

19:01And the Fed says, well, inflation has stopped. So I think it's definitely very distressing of how much it jumbles around prices. But what the Fed's supposed to do is not make you think about it. Like, yeah, there are little changes here and there. You feel good when your salary goes up a little bit. You don't notice when other things. But it's exactly when we're talking about it that they've got it wrong. So, Wilson, if I said to you that gold over the last 25 years, gold, has outperformed the S &P 500, the best 500 companies in the United States, what would your reaction be to that? Well, I mean, I follow it.

19:45So I don't follow everything, but I follow that one. And, you know, I think that partly reflects that central banks around the world, people around the world don't trust currencies. And that's just sort of common sense. I mean, it's absolutely some of the demand for crypto also. They don't trust the government. And if you're China, you really don't trust the United States. Look at the sanctions they're putting on everyone. So, you know, there's a lot of reasons gold has gone up, but I like to say gold is the new gold. It's, you know, it's it there are reasons it's done very well. It's a it's the new reserve currency.

20:24I mean, if China could buy more of it, they would. So it's it's it's been remarkable. But I mean, it's I wouldn't say it shocked me. I every time gold goes up and the smug people say only stupid people buy gold. They're nuts. I mean, I actually tell central banks, I tell high net worth individuals, at least, of course you should hold some gold. I mean, it's a diversification at the very least. I don't know you're going to outperform the S &P 500 again. You've got to pick the dates to make that work. But, yeah, it's remarkable. I love the book because it took me down through some history that I didn't fully understand or appreciate.

21:06It also explained the fallibility, which you and I, as we get older, Ken, we know how fallible we are, right? It took me down the road of fallibility, where as a younger man, I would have talked with more certainty about things, and a lot of different things are going on here. You know, what I love about your writings, you don't just write from the Ivy Tower. You're sitting across some policymakers and heads of state, central bankers, and so forth. And when I closed the book, I was like, wow, the system is shakier than it looks. And I don't know. Am I right about that, sir? Or I mean, I can or am I wrong about that?

21:47I feel like the system is. I think we're under appreciating how fragile things are. What say you? Absolutely. A few decisions differently at different times. The world could have gone a lot differently. The financial crisis could be worse. And I make a big point in the book of how lucky we were as Americans that it wasn't all how great we were. Europe made a bad mistake putting Greece in the euro that they went from 26 % of reserves to now, even now, only 20 % of reserves. China decided to peg to the dollar and stuck to it too long. and you can go back to mistakes that Japan made where they let us beat up on them more than they needed to.

22:36So you can point at mistakes where we've, you know, risen very high. And I also think Americans don't realize it has been coming down for a while. Like your luck kind of, you know, you get to control everything and your, you know, your luck can start turning against you. And I think we're in a world today where our luck really could turn against us. I mean, Some of the stuff we're doing, the tariff war, the war on the rule of law, part of why people like to hold American assets is you trust our courts. You don't think some president - The centralized, safe system is being stressed out right now.

23:12Exactly. A centralized system is not as safe. You're not looking to hold your money in a place where one person can decide to upend you. So, yeah, I think there are a lot of concerns. that I think investors around the world have. All right, I'm down to the five words. And what we do is our very famous five words. I pick five words out of the book and I ask our authors to opine. You give me a sentence or two. If I say the word inflation to you, you say what? It's going to happen again. See, when I hear the word inflation, I think regressive tax. You know, it really pains me because that's really what happens.

23:50For sure, for sure. Very regressive because richer people know how to get around it. Exactly. And richer people can hold assets. My poor dad, he made his money with his time and labor. You're literally taking a part of his life away from him without any hedge, unfortunately. But when I say China, you say what? it's not going to surpass the United States and this whole idea of a second China shock and it's all over. You know, they're amazing. It's formidable. But they're probably not even growing now. And I think they're headed for a long period of working their way out, probably eventually need to get rid of one man role themselves.

24:32I say crypto, you say what? I say tremendous innovation, but still the Wild West. You know, I want to see a regulatory system, which I think would benefit crypto in the long run. What do you think? You're way more atop of this than I am. Well, I mean, this is my podcast to talk to you, Ken Robult. Obviously, I'm a bull on things like Bitcoin. I'm a bull on the future of digital. I just think that Paul Atkins, who's a friend of mine, was explaining this earlier today on Squawk Box that our rail system can take us to T0, which is trades can happen and be affected on the same day. When I started in the business, they were T5, which was five trading days.

25:20They're now T1. And so, again, even Jamie, who thinks that Bitcoin is a Ponzi scheme, Jamie Dimon, who I think is one of the smartest people in our industry, accepts that there's going to be a role for the blockchain in the future of financial transactions. So I'm bullish. Let's talk about - You'd have to have your hat in the sand not to think blockchain is going to buy. I think what people don't appreciate about Bitcoin the most is that there's a role in the global underground economy, which isn't all illegal. It's mostly tax evasion. And also in emerging markets where, again, they don't like the dollar, it's an asset people can hold.

25:57They're in an emerging market. You don't want your government to be able to take it away from you. Yeah, and I think that's people in the West who, even though we have inflation and we're talking about all this in your book, people in the West don't realize the pain that African citizens feel from their governments as they wipe out their net worth through their currencies or things going on in South America. So there was a market outside of the Western liberal democracies for these assets. So, all right, last two words. OK, the second to last power. I say the word power, sir. You say what? Well, I think the dollar has been an incredible instrument of power.

26:34And some of the policies that we're engaging in now are taking it for granted. And we're going to miss it when it's gotten weaker. The last word, and you get the last word on the last word, U.S. dollar. The U.S. dollar is going to get knocked down a couple notches. We were luckier than we think to get where we are. But the way we're running the show on our debt, undermining Fed independence, trade wars, the dollar is not going to have the same stature in 10 years. No one will replace it, but it's going to have a much lower market share. Well, I always enjoy my time with you, Professor Thorne Rogoff.