Tuesday, June 6, 2023

Kenneth Rogoff, a professor of economics at Harvard University and the former chief economist for the International Monetary Fund (IMF), is warning that if the United States fails to pay back its debts, it could spark a global financial crisis. He said it was an incredibly risky situation and we are entering uncharted territory.

Kenneth Rogoff on the Dangers of a Possible US Default and Global Financial Crisis

Kenneth Rogoff, an economics professor at Harvard University, recently shared his thoughts on the US economy in an interview. He has also been Chief Economist at the International Monetary Fund from 2001 to 2003 and currently holds the title of Maurits C. Boas Chair of International Economics. In the interview, he discussed a possible U.S. default and global financial crisis.

Someone asked if the U.S. debt crisis and its potential default could cause another worldwide recession (which means a period of low economic activity). The man answering said yes, it could cause a global financial disaster if things get worse. He really hoped that this situation wouldn’t get any worse – but he was scared because nobody knew what would happen next.

When it comes to budgeting, usually people only look at one bill at a time. They check all the information carefully and then come up with a plan on how to work them out. However, Republicans are different – they want to solve everything at once. That is not something most countries do concerning their financial policies.

He warned: “Usually, these talks get fixed by midnight but there’s a very small chance right now that we will see what a U.S. not paying back the money it borrowed looks like.”

Defaulting on the U

Professor Rogoff said that the U.S. has done something like defaulting in the past. President Roosevelt did this back in the 1930s by changing the gold price from $20 to $35, which meant that America paid its debt in money instead of gold which was worth much less at that time.

The teacher spoke about the United States right after the Revolutionary War. Alexander Hamilton, who was the first Treasury Secretary of the U.S., chose to only pay some of the debt from when the country was still a colony. The professor summed it up by saying:

Recently, our prices have been really high so if you usually buy debt from the U.S., that means your money has lost its worth during these past two years. That’s like when people say you’ve “defaulted” on something because you didn’t expect it to be bad, but it’s still not as bad as what would happen if this was like a black hole.

The U.S. Treasury Secretary, Janet Yellen, has warned that the government may not be able to pay its bills if Congress doesn’t raise or suspend the debt limit by June 1st. But some people think raising this debt ceiling will actually make things worse – like Peter Schiff, an economist.

The government might not be able to pay its debt in June, warns Yellen and the Congressional Budget Office. The International Monetary Fund (IMF) said that if this happens, it will cause very serious problems. At the same time, Donald Trump (who ran for President in 2024) asked Republican lawmakers to let the US not pay its debts if Democrats don’t agree with spending cuts.

Do you agree with what Harvard economics professor Kenneth Rugoff said? Let us know your views in the comments section below.

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