Tyler Cowen has one of his characteristically wide-ranging “Conversations With Tyler” with “Kenneth Rogoff on Monetary Moves, Fiscal Gambits, and Classical Chess” (April 30, 2025, audio and transcript available). Here, I’ll pass over the comments about the economies of China, Pakistan, Latin America, Japan, the EU, and Argentina, and focus on Rogoff’s comments on the prospects for US debt and for a surge of inflation in the medium-term:
Looking way forward, I would just say we’re on an unsustainable path [for federal givernemtn borrowing]. We will continue to have our debt balloon. Eventually — not necessarily in a planned or coherent way — I think we’re going to have another big inflation soon, next five to seven years, maybe sooner with what’s going on, and that’s going to bring it down just like it did under Biden. It brought the debt down. Then the markets are, fool me once, shame on you. Fool me twice, no, we’re raising the interest rate, and then we’ll have to make choices. …
Last time [during the Biden administration] we probably had a bonus 10 percent inflation over the 2 percent target cumulatively, maybe 12 percent. I think this time, it’ll be more on the order of cumulatively over the 2 percent target, 20 percent, 25 percent. There’s going to be an adjustment. I don’t think the debt is going to be the sole contribution to that. There are many factors. You have to impinge on Federal Reserve independence. Probably, there’ll be some shock, which will justify it. I don’t know how it’s going to play out.
I know that for years, people have said the US debt is unsustainable, but it hasn’t come to roost because we’ve lived through this post-financial crisis, post-pandemic era of very, very low and negative real interest rates. That is not the norm. There’s regression to mean. You know what? It’s happened. Suddenly, the interest payments start piling up. I think they’ve at least doubled over the last few years. They’re quickly on their way to tripling, of going up to $1 trillion. Suddenly, it’s more than our defense spending. That’s the most important macro change in the world, that real interest rates appear to have regressed more towards long-term trend. …
The problem is in our politics. It’s in our DNA. We’re convinced that we’re immortals, and we can just do whatever we want. You go around Washington, whatever they say, I think that’s what they think. Again, this key thing is that real interest rates, the interest rate adjusted for expected inflation — and I’m looking at the long term — they’ve come up. They’re not super high, but they’re more like they were in the early 2000s, and, I think, of reasonable projections, they’re going to stay around the level they are now. …
My students, for a long time, just didn’t believe there’d ever be inflation again. I would teach it; they would fall asleep. I remember asking a question even to someone who was a research assistant at a big central bank, “Explain this to me about inflation.” She said, “My generation doesn’t ever expect to think about inflation. We don’t have it. Please give examples of this.” So no, I would suspect we will have high real interest rate.
