Tuesday, June 6, 2023

Kenneth Rogoff, an economics professor at Harvard and former chief economist at the International Monetary Fund (IMF), says that if the United States doesn’t pay its debt, it could start a global financial crisis. He said it’s a very dangerous situation and we don’t know what will happen.

Professor Kenneth Rogoff Warns of Potential Global Recession

Professor Kenneth Rogoff from Harvard University had an interview with Srijana Mitra Das on Thursday. He talked about the U.S economy, a potential U.S default and a global economic crisis. Rogoff is an Economics professor and he was also the Chief Economist at the International Monetary Fund from 2001–2003.

Someone asked if the current financial problem in America could make a global recession come back. Rugoff answered that it was definitely possible, and it would be really bad because the situation is very dangerous right now and no one knows what will happen. He hoped it wouldn’t come to that but he can’t be sure.

Usually when thinking about government money, you take a look at each bill one by one and figure out the details. But the Republicans are trying to do something different—they want it all in one go! It’s not how any other nation does things with their finances.

He warned: “Usually, we can find a way to work things out before midnight but at the moment there is a small chance (2-3%) that we might see what U.S. not paying its debts looks like.”

Is It Time to Default?

Harvard Professor Rogoff talked about how the US defaulted on its debt in the past. He used an example from the start of 1930s when all of America’s debts were payable in gold. President Franklin Roosevelt changed things and said that you had to pay debt with dollars, not gold, which was worth less. In this way, he argued that we basically defaulted on our debt.

The professor talked about the time after the Revolutionary War. He said that Alexander Hamilton, who was the first Secretary of the U.S. Treasury, only paid off part of the debt which was left over from before America won its freedom.

Recently, prices of goods and services have gone up a lot. If you own any U.S debt, that means the value of what you owned has gone down over the last two years – like you lost some money unexpectedly. That’s kind of like not getting paid back what you’re owed – which is worse than high inflation.

The U.S. Treasury Secretary Janet Yellen said that there might not be enough money for the government to pay its bills if Congress does not raise or lift the debt limit before June 1st. However, some people, such as Peter Schiff, an economist, believes this increases the problem instead of fixing it.

The government might not be able to pay all of its debts on time in June, according to some experts. The IMF said that a financial crisis could happen if the payments do not come through. Former President Donald Trump suggested that Republicans should skip the payments if Democrats cannot agree on how much money should be spent.

Do you agree with Harvard economics professor Kenneth Rugoff? Let us know what you think in the comments section below!

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