Kenneth Rogoff

The US fiscal outlook is becoming increasingly precarious as the federal deficit approaches 6% of GDP, national debt exceeds $40tn and long-term interest rates rise. Treasury Secretary Scott Bessent is attempting to support bonds by replacing long-term borrowing with short-term debt, but this approach fails to address the underlying deficit and assumes that AI-driven growth will generate sufficient future tax revenue. Ageing-related costs, military spending and populist demands are likely to keep spending elevated, while the erosion of the Treasury market's safe-asset premium threatens the dollar's global dominance. Meaningful debt reduction is unlikely before the midterm elections, leaving bond markets skeptical and raising concerns about Bessent's credibility.

The AI boom is enriching a small group of technology companies, investors and skilled workers while threatening to automate large areas of white-collar employment. Countries embedded in the AI supply chain, including the US, South Korea, Japan, Taiwan and China, may capture substantial gains, but countries across Africa, Latin America and parts of Europe risk mass job losses without the tax revenues needed to fund social protection. India could become a major AI winner because of its technical and creative talent, yet its outsourcing sector is vulnerable to automation. The author argues that governments must spread AI-generated wealth more broadly and strengthen safety nets, or the technology could permanently widen inequality within and between countries.

Kenneth Rogoff argues that economists who take centrist positions are increasingly misrepresented in a polarised public debate. He revisits the controversy over his and Carmen Reinhart’s research linking very high public debt with slower long-term growth, stressing that a corrected journal version preserved the study’s broad conclusion and never advocated austerity or claimed that 90% debt-to-GDP was a sudden collapse threshold. Rogoff maintains that high debt can constrain investment, raise distortionary taxes and reduce governments’ ability to respond to crises, while acknowledging the importance of stimulus during downturns. He also highlights alternative measures such as debt forgiveness and temporarily higher inflation targets, and says the broadly serious reception of his latest book offers limited hope for more constructive economic debate.

Donald Trump’s proposed strategy to weaken the dollar and reduce US trade deficits rests on an incomplete understanding of how reserve-currency demand affects the economy. Foreign demand for Treasury securities does not necessarily require trade surpluses, as countries can sell other foreign assets to acquire them, and historical examples show reserve-currency countries such as the US and UK have sometimes run external surpluses. The US current account deficit is also shaped by the gap between national saving and investment, especially the large federal fiscal deficit, as well as the strength and attractiveness of the American economy. Reducing the fiscal deficit would be a more direct, though politically difficult, remedy than imposing tariffs, while a weaker dollar and trade war are unlikely to solve the deficit’s multiple underlying causes.

Germany and France face prolonged economic weakness as Europe prepares for a possible trade war with Donald Trump’s incoming administration. France’s large deficits and debt make further stimulus difficult, while Germany’s rigid debt brake, infrastructure problems, political turmoil, energy losses and struggling automotive sector require structural reform. The article argues that spending on infrastructure and education could help Germany, but only alongside more flexible labor-market policies modeled on the Hartz reforms. Other European economies may partly compensate for the weakness of the two largest, but tourism and limited recovery are unlikely to prevent a lacklustre 2025 without substantial reform.

Economic uncertainty, political polarisation, high government debt, geopolitical tensions and deglobalisation are making central banks more likely to tolerate renewed inflation rather than risk a deep recession or financial crisis. Kenneth Rogoff argues that central-bank independence is limited because governments control appointments, budgets and mandates, while forecasting models often fail at major turning points. Although central bankers may restore inflation to target in the short term, political pressure and expanded demands involving inequality, climate change and social justice could produce another inflationary surge within the next five to ten years, sooner than financial markets expect.

The return of higher inflation and normal long-term real interest rates has undermined the assumption that advanced economies can finance expansive government spending cheaply through debt. With average debt-to-GDP ratios in advanced economies projected to reach 120% by 2028, governments are urged to rebuild fiscal buffers and ensure sovereign-debt sustainability. High debt can weaken growth by crowding out private investment and limiting the ability to respond to future crises. Historical evidence from the United States suggests that reducing debt through growth depended on interest-rate controls and inflationary episodes that are less viable today, requiring major adjustments to US fiscal policy.

The US stock-market rally, driven heavily by enthusiasm for artificial intelligence and expectations of limited regulation, appears disconnected from deep political divisions and mounting economic risks. Investors may believe presidents have limited short-term influence or that congressional gridlock will restrain regulation, but Rogoff argues that protectionism, unsustainable debt, immigration restrictions, inflationary pressures and weak oversight could undermine long-term growth. AI could displace workers, intensify political instability and distort public discourse unless regulators act more effectively. A second Trump term could bring wider trade conflict, weakened alliances and institutional damage, while a Biden victory would be more predictable but could still produce higher interest rates and inflation risks. The boom is therefore unlikely to endure regardless of the election outcome.

Despite widespread expectations of a soft landing or mild global slowdown in 2024, significant downside risks remain. China’s deflation, property crisis, weak demand and rising local-government debt could produce a Japan-style lost decade. Europe faces weak growth, depleted defence stocks and pressure from US protectionist subsidies, while a potential Trump return could worsen trade tensions and security burdens. In the United States, continued deficit-funded spending and persistently high real interest rates may force a choice between fiscal austerity and renewed inflation, leaving the global economy vulnerable to substantial turbulence.

The global economy avoided several expected crises in 2023, including a US recession and an emerging-market debt crisis, but the outlook for 2024 remains fragile. High interest rates, elevated debt, deglobalisation, populism, increased defence spending and the green transition are expected to keep long-term borrowing costs above the unusually low levels of the previous decade. China faces slowing growth, a distressed property sector, heavy local-government debt and constraints on state bailouts, while Japan must carefully normalise monetary policy despite very high public debt. The US still faces an elevated recession risk, compounded by expansive fiscal policy and the uncertainty of an election year. Emerging markets remain relatively stable, but rising geopolitical tensions—including possible conflict over Taiwan and a potential Donald Trump victory—could make 2024 turbulent for the global economy.

Long-term interest rates are likely to remain higher than during the decade after the 2008 financial crisis, even if inflation declines. Rogoff argues that soaring debt, deglobalisation, higher defense spending, the green transition, redistribution demands and persistent inflation will make government borrowing more costly, exposing the flaws in the idea that public debt is a free lunch. The adjustment could be especially difficult for the United States, Europe, Japan and heavily indebted emerging economies, with commercial real estate and the eurozone particularly vulnerable. Policymakers may need to accept that expanding social programs or military capabilities without raising taxes is not costless.

Large emerging markets have avoided the anticipated debt crisis despite high global interest rates, a strong US dollar, geopolitical turmoil and economic weakness in China. Their resilience is attributed to prudent IMF-influenced policies, large foreign-exchange reserves, longer debt maturities, central-bank independence, earlier interest-rate increases and tighter controls on currency mismatches. The article contrasts this performance with Argentina and Venezuela, while presenting Turkey as an unstable exception. Persistent high rates, rising debt, defense spending, green-transition costs, populism and deglobalization could still expose emerging markets to future distress.