Friday, March 29, 2024

Kenneth Rogoff, a professor of economics at Harvard University and a former chief economist at the International Monetary Fund (IMF), has warned that if the US fails to pay its debt obligations, it could cause a worldwide financial crisis. He described this as a “very dangerous situation” and said we are in unknown territory.

Kenneth Rogoff Discusses US Economy and a Potential Global Financial Crisis

Kenneth Rogoff, an economics professor from Harvard University, was recently interviewed by ET editor Srijana Mitra Das. He shared his thoughts on the US economy, a potential default and a worldwide financial crisis. Before joining Harvard University, Kenneth Rogoff had worked for the International Monetary Fund (IMF) as Chief Economist and Director of Research between 2001 to 2003.

Someone asked if America’s debt issues could lead to problems all around the world. The person that answered said it was a big possibility and he hoped it wouldn’t happen since it would be super dangerous. He also said that right now we don’t know what could happen so we have to stay inside the lines.

When it comes to controlling government spending, usually one bill is studied and then discussed in order to work out the details. However, the Republicans are trying to get everything all at once, which is not common when managing funding for a country.

He warned us that there is a small chance (2 to 3 percent) that we will find out what happens when the U.S. government does not pay its debts on time, which usually gets solved before midnight.

Examining U

Harvard professor Rogoff said that the U.S. has “defaulted” before, but in a different way. He gave an example from the 1930s when American debt was supposed to be paid with gold. President Franklin Roosevelt changed the price of gold from $20 to $35, which meant paying the debt with dollars was worth less than it used to be, so we defaulted on the gold clause.

After the Revolutionary War in the U.S., Alexander Hamilton, the first treasury secretary, only paid for part of the money owed from when it was a colony. The professor who talked about this was called Rugoff.

Recently, prices of things have been getting higher and higher. So if you have U.S. debt, the money it’s worth has gotten less in the last couple of years, which is kind of like not getting what you expected—that’s called a default. But it’s not as bad as risking everything by being swallowed up into a super dangerous black hole!

Janet Yellen, the Secretary of the U.S. Treasury, has said that if Congress doesn’t increase or lift the debt limit before June 1, then the government won’t be able to pay all its bills. However, economist Peter Schiff disagrees and thinks it will make the problem worse if they do raise the debt ceiling.

The Congressional Budget Office and the IMF both said that if the U.S. Government doesn’t pay its debts in June, it can cause some really bad problems around the world. But ex-President Donald Trump suggested that even if it might be dangerous, Republicans must let the government default on its debts unless Democrats make a deal with spending cuts.

Do you think Harvard economics professor Kenneth Rugoff is right? Share your thoughts in the comments!

Image Credit: Shutterstock, Pixabay and Wiki Commons.

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