Interest payments on the federal debt are already bigger than defense spending, and the Congressional Budget Office has them on track to become the government's largest single expenditure.
The dollar's exorbitant privilege is usually discussed as something America still enjoys. Kenneth Rogoff said the largest part of it — borrowing more cheaply than other rich countries — stopped being true about a decade ago.
"And that's why I kind of feel there needs to be blood in the street before you're going to see action."
Rogoff was the International Monetary Fund's chief economist when Argentina defaulted in 2001, wrote "This Time Is Different" with Carmen Reinhart, and has spent thirty years telling people to look at two-hundred-year averages instead of the last ten.
The full interview is covered here so you can skip it. 72 minutes of audio, 21 minutes of reading.
Here are the 15 lessons that matter.
👤 Guest: Kenneth Rogoff, Maurits C. Boas Professor of Economics at Harvard University, Chief Economist and Director of Research at the IMF from 2001 to 2003, and author of "Our Dollar, Your Problem"
🎙️ Host: Cole Smead, CEO of Smead Capital Management and a portfolio manager there
📰 Published: 13 September 2026, on YouTube (A Book with Legs) · recorded earlier
🔴 YouTube | 🔗 Episode page | ⏱️ 1 hr 12 min | ✅ Time saved: 51 min
Key Takeaways
The cheap-borrowing half of the dollar's privilege is already gone, and researchers date the peak to about 2015
Against other major advanced countries, setting Britain aside, the US no longer pays a lower rate
Whether the dollar keeps its share is a political decision made in Beijing and Brussels, not in Washington
Germany's share of the European Central Bank's bond buying looks like a subsidy of roughly 10% of its GDP to Spain and Italy
Europe's real handicap is that it has no common bankruptcy code, so no company can borrow at scale
China built more housing than France or the United Kingdom has, and has no property tax to fund its local governments
Bitcoin's use case is tax evasion, and that gives it a floor rather than a ceiling
His back-of-the-envelope floor is $50,000; the global underground economy is about 20% of world GDP
Interest payments already exceed defense spending and are heading for first place
Neither party will move on the deficit until a shock arrives, and he has brought his own timing forward
1. The Book's Accidental Timing
Cole Smead opened by asking what a year of hindsight had done to a book published in April 2025. Rogoff said the timing was the publisher's, not his.
He wrote it to be read for decades, not for a season. "Well, I wrote the book to try to be something people read for 20 or 40 years." He deliberately avoided predicting where the dollar or interest rates would be tomorrow.
The manuscript was finished before the 2024 election. A university press held it — he says he would have wanted December 2024 — and published it in April 2025, immediately after what the administration called liberation day.
The reception flipped completely around that date. Readers he showed it to beforehand told him it was too dark: rates would not stay that high, China would fix its problems, the dollar would be around forever. After publication it became the book of the month and the complaint reversed: "Aren't you a little too optimistic in the book about what's happening? You're not dark enough."
The themes he says have not moved are real interest rates, China and Europe. The chain of logic he set out is that the US is having trouble getting its act together, that being rich has never protected a country, and that rising global real interest rates are a serious problem for the world's biggest debtor.
He had a piece in Foreign Affairs out the day of the recording revisiting exactly that argument.
2. Kindleberger vs Triffin
Smead noted that much of the book's framework is Charles Kindleberger's, and that a previous episode covered Perry Mehrling's book on him. Rogoff used the comparison to set up the argument the book is really about.
He took Kindleberger's class at MIT and says he did not appreciate him at the time. Kindleberger was not technical, and the graduate students and young professors around him were writing mathematical papers while he wrote what they regarded as soft material that was hard to publish in journals.
"But, he had a couple towering home runs." One of them, Manias, Panics and Crashes, was being written or published while Rogoff was taking his course.
The debate was Kindleberger against Robert Triffin, and Triffin won. Kindleberger's position was that the system would never blow up. Triffin, at Yale, said it would. "It turned out he was right. By the way, Kindleberger was wrong."
Rogoff walked through the mechanics for younger listeners: the dollar was once convertible into gold, Franklin Roosevelt ended it for Americans in the 1930s, and in 1971 Nixon ended it for governments. "That was a that was a very big deal", and the 1970s were a very bad period for the dollar.
3. Populism Creates the Debt
Smead raised Adrian Wooldridge's argument that populism is the shadow of liberalism, and asked how the clash settles. Rogoff treated populism as a fiscal problem before a political one.
His definition is broad on purpose: more government intervention, whether it comes from MAGA or from the democratic socialists, and pressure everywhere to make more things free for the middle class.
The chain he described runs from that pressure to budget pressure to inflation pressure. Even in Europe, where a great deal is already free for the middle class, the same pressures apply.
The geopolitical items he listed alongside it were China wanting to take Taiwan, Russia invading Ukraine, and Iran trying to find its place in the Middle East.
His historical claim is that wealth is no protection. "No matter, it's always been very rich countries that, have run into debt problems." Not just middle-income and low-income ones.
4. The Privilege Has Faded
Smead pointed out that the dollar is still high even after the 2025 depreciation, and that the title comes from Treasury Secretary John Connally telling Europeans the dollar was America's currency and their problem. Rogoff separated two things that get confused.
The level of the dollar and the privilege of issuing it are different subjects. He has spent much of his career on what the dollar is worth, but the book is about the exorbitant privilege: low interest rates and dominance over the financial system.
The lower interest rate is most of the privilege, and it has gone. "That is just no longer the case compared to other major advanced countries setting aside Britain." He cited Hanno Lustig and Arvind Krishnamurthy at Stanford, who date the peak to around 2015, as he does.
The rest of the privilege is the ability to impose sanctions and to watch transactions. Those fade with market share rather than disappearing at once. "It's no, it's been gently fading."
The decision is not America's to make. "And finally, let me say ultimately it's a decision of China. It's a decision of the European Union, a political decision that they want to have more separation." Donald Trump, he said, has been an accelerant of that.
Rogoff also flagged a dissenting view from a colleague rather than presenting his own as settled: Gita Gopinath has a theory that a rising dollar is bad for everyone, partly because it raises the cost of dollar-denominated trade.
5. Why Europe Cannot Scale
Smead asked how unique the euro experiment is, and later brought up bank consolidation. Rogoff described himself as a long-standing skeptic who keeps being surprised.
The euro got further than he expected, twice. It blew up in the early 1990s during convergence, succeeded later, and by the early 2000s there was more euro government debt outstanding than dollar government debt. Today there is more dollar debt than everything else put together.
His diagnosis of Europe's cost of capital is one missing institution: a common bankruptcy code. Borrowing money there, he said, is as if you had to file in all fifty states, with different judges and different laws, so entrepreneurs end up confined to Austria or Sweden and nobody can compete at scale with the United States.
Mario Draghi made that point forcefully and Enrico Letta's later report repeated it. Rogoff said he was recently at the European Central Bank talking about the book and everybody told him it is about to happen. "Well, believe it when I see it. That will be a huge step. You can imagine for bond investors."
The second thing Europe has to do is defend itself, and coordinate while doing it. He repeated a friend's line about visiting a European country and seeing a beautiful opera house with subsidized tickets: "I think I paid for that". They were not paying anything for defense. Fifteen armies disagreeing about which tank to buy is a problem that money alone does not fix.
He is nonetheless an optimist on Europe, which he knows sounds strange. Its advantages are the rule of law and a decentralization that produces stability: when France changes president, everything does not change overnight, unlike the swings between US administrations.
China, not Europe, is the urgent threat in his framing — militarily, economically, and eventually financially.
6. Germany's Hidden Subsidy
Smead's reading of the European Central Bank's crisis-era bond buying was that it worked out profitably, because the southern countries' bonds yielded well above inflation. Rogoff accepted the outcome and rejected the inference.
"Yeah. Although, it could have gone differently." The ECB took on a great deal of risk, and being paid for risk that did not materialize is not the same as having taken none.
The transfer was large and mostly invisible. He said most finance economists who have looked at it would argue Germany made a very big subsidy to Spain and Italy in particular, with estimates of the cost to Germany "on the order of 10% of GDP" cumulatively, and a benefit to Spain and Italy a little less than that but similar.
Smead's analogy was the Federal Reserve buying Illinois bonds when Illinois is in trouble. Rogoff's answer was that it might pay off, "but it's a gift."
What the ECB was really doing was standing in for a fiscal union that does not exist. He was careful not to criticize the institution for it, but said there is a lot going on under the table that most people have no idea about: ask European central bankers, he said, and the answer is "Well, it's safe debt. We're buying safe debt."
His general rule about crises that ended well: run the same policy ten times and you would have "lost your shirt once or twice."
7. What Mexico's Peg Cost
Asked to explain the tequila crisis for listeners too young to remember it, Rogoff used it as the book's case against pegged exchange rates.
Mexico held its currency very heavily stabilized against the dollar while the government, the country and especially the banks borrowed very large amounts in dollars.
Investors assumed a bailout union that did not exist. People said the North American Free Trade Agreement meant the US would not let it happen. "And the thing is the North American Free Trade Agreement said nothing about being a bailout union." He added that Congress would have been very lucky to approve one.
The peg was attacked in late 1994 and, in his recollection, fell by 50%, which destroyed a banking system that had borrowed heavily in dollars. There was a bailout, and it did not stop Mexico suffering tremendously.
8. China's Two Faces
Smead asked about a scene from the book in which an attendant catches a falling teacup. Rogoff confirmed it and moved from the anecdote to the six China chapters.
The meeting was with Zhu Rongji, whom he calls one of the greatest leaders China has had. The seven or eight visitors were each served tea by women in blue robes they had been told were the premier's bodyguards. One guest turned, his cup dropped, and it was caught before any tea spilled. "I think they've got some skills."
The structural point is that the outward-facing part of China is formidable and the inward-facing part is not. The domestic economy is the much larger part, and it is in a real estate crisis he has written about for a decade.
He made the call in public, in Beijing, and it was not welcome. He went off script at the China Development Forum, in front of the leadership and most of the world's investors, to say that housing prices meant a real estate problem was coming. Afterward a vice premier told him his comments were appreciated: "And I was thinking, is that what they say just before they arrest you?"
His explanation for the overbuilding is government allocation itself. "when you have the government do something and you tell it, you want a million nails, you might get a 100 million nails", and the result is that China has more housing than much richer countries, than France, than the United Kingdom.
A weak Chinese economy does not protect the United States. The export sector and the tax base remain strong, so the competitive sectors are still there to deal with.
Smead noted that Jim Chanos was making the overinvestment case at the same time, and that in 2009 the New York Times was running articles suggesting America might be better run by a nine-person bureau. Rogoff said the Times covered his own warning because it touched real estate and "they didn't take it very seriously."
9. Governing 1.4 Billion People
Smead asked about the gap between the national party and local politics. Rogoff's answer was about scale before it was about incentives.
The problem is size, not only misalignment. The United States is hard enough to run with 350 million people. On China, he quoted an answer he was once given about whether the center knows what happens in the western provinces: "they haven't known for 2,000 years."
The tax fact he finds most striking is the absence of a property tax. There is "no real estate tax in China", he said — "Imagine that." Local governments can be broke, and a housing tax is still unthinkable.
The center blocked it deliberately. He said the reason was that a property tax raised too much money for local governments, gave them too much power, and came with too much corruption.
His warning against importing small-country models: US progressives admire Denmark, and there is a lot to admire, but governing six million people is closer to running a small franchise than to running China.
10. Bitcoin's Real Floor
Smead read out Rogoff's one-line view of crypto — that no private currency wins a game in which governments make the rules — and put up the book's chart of the underground economy in Europe.
He concedes he did not see the use case at first. When Bitcoin came out he did not fully appreciate what its final use would be.
He rejects the claim that Bitcoin is money simply because people believe it is. The long chapter in Yuval Noah Harari's Sapiens comparing Bitcoin to cigarettes in prisoner-of-war camps and stones on the island of Yap is beautifully written and, in his word, "so misconceived", because governments have a lot of control.
Where they do not have control is the underground economy, and that is the use case. Most of it is tax evasion, which he called the monster part — smaller in the US than in Europe, because value-added tax is easier to avoid than income tax, and higher again in places like India.
The size of that market is what sets a floor. He and the World Bank reach similar estimates of about 20% of global GDP: "So think 20 to 25 trillion dollar." That does not make Bitcoin worth $10 million, he said, but "I think it does put a floor. I have no idea what it is, although I put a back of the envelope of $50,000."
He is on record against the zero camp. He said he is surprised how many people still say it is worthless and a mirage, because people will always try to avoid the government: "If taxes get bigger, if regulation gets bigger," that is good for Bitcoin.
Stablecoins have already overtaken Bitcoin in that use. Smead added the economics — for someone moving money illegally, a counterparty willing to help has real value, and interest is beside the point.
11. Stablecoins Are Unsettled
Smead asked whether a stablecoin is just a money market fund that pays less interest. Rogoff refused to call the endgame.
The reason Tether dominates is that it is not traceable, and that is a regulatory question rather than a technical one.
China has tens of millions of users it does not want. A Chinese regulator he has known for years, whom he describes as the country's digital-currency czar, told him there are 80 million stablecoin users in China. "They don't want them," he said, and they cannot stop them. People use virtual private networks.
Sanctioned trade already runs on them. He said China and Russia trade with stablecoins, as do China, Russia and India, and that Iran famously has been trading with them.
The open question is what the stablecoin law will require: what has to be reported, to whom, and whether know-your-customer rules apply.
He would not endorse the headline forecasts. "So these numbers like Scott Bessent says it's going to be $3 trillion. I don't know." Whether the product ends up looking like a money market fund, and whether it pays interest, is not settled either.
12. Exceptionalism Is Earned
Smead gave his own view first: that American exceptionalism is a parade thrown after the last era was already won, and that saying it out loud is a sign it is fading. Rogoff agreed with a qualification.
There is exceptionalism, but it no longer shows up in what America pays to borrow. "It's hard to detect that we're being given a privileged position." Controlling for how much the US borrows there is something left, but not much.
What it rests on is institutional: the rule of law, the constitution, a formerly stable political system, and the markets. "It's not something that you own. It's something you have to earn all the time."
The method he has spent thirty years pushing is the long sample. Look at two-hundred-year averages rather than the last ten, whether the subject is interest rates or debt, and do not simply extrapolate.
His conclusion is erosion rather than collapse. Artificial intelligence, he said, seems to be good for the dollar, but there are a lot of undercurrents likely to weaken America's grip. "Not eliminate it, but weaken it. And if we don't adjust to that, it could be very painful."
13. Swap Lines Carry Real Risk
Smead put up the book's chart of foreign central bank use of Fed dollar swaps and suggested they function like a temporary peg. Rogoff corrected the history and then made the point he says gets forgotten.
They were invented for the opposite problem. The idea originated in the late 1950s and early 1960s, when the US was on gold, Europeans were accumulating dollars, and Washington did not want them turning up to take the gold. They were used at scale again in the global financial crisis and the pandemic.
The purpose is to make a panic survivable for everyone else. The US cannot have a run that forces default, because it can print; it can have inflation and high interest rates instead. A country with big dollar markets and no printing press gets violent interest rate and exchange rate moves, and would eventually ban those markets rather than endure them.
Others now run the same play: he said China has swap lines out to about 39 countries, and the euro system has them too — the copying his host had described, applied to currencies.
The part he insists on is that they are not free. "A thing that I mention about swap lines is it's not free. It's not riskless. Even if Fed testimony says it is," and the example he gave is making a loan to Korea in the middle of a disaster nobody has seen before.
His verdict is a commercial one, not a moral one. "It's worth it. It's a business decision," he said, and then added that it is risky all the same. Which is why he has no patience for proposals to democratize swap lines and hand them to every developing country.
14. Everyone Wants the Fed
Smead raised the book's section on mission creep at the Federal Reserve — that it is not the Environmental Protection Agency, and that an interest rate cannot do surgical redistribution.
The line Smead remembered was about a research department at a regional Fed. Rogoff confirmed it: his friend was "the last person working on monetary policy" in the research department there.
His explanation is that the Fed gets used because Congress does not function. People go to the Fed for the same reason they go to the Supreme Court — to get something done that Congress cannot — and that has been getting worse.
He spread the blame across administrations. There is a lot of theater about Trump's pressure on the Fed, he said, but there was pressure from Obama and much more from the Biden administration to care about inequality and the environment.
The evidence he pointed to is the conference programme. Jackson Hole ran special editions on inequality, social justice and the environment. Those are really important issues, he said, but the Fed does not have the competence for them: "It doesn't have the instruments. It doesn't have anything to deal with that."
He is sympathetic to the current chairman's narrowing of the mandate: "And I'm very sympathetic, frankly, to what Kevin Warsh is doing in trying to streamline what they do in order to, have a better focus."
On the map of the system itself he was blunt. The New York Fed president always votes on the Federal Open Market Committee and the San Francisco Fed does not. "That's ridiculous. Like that's ridiculous. I mean it should especially with tech. This is an absurdity." Smead's own complaint was that Phoenix, a top-five metro area, has no reserve bank near it.
15. Waiting for the Crisis
Smead quoted Dick Cheney's line that deficits do not matter, noted that neither party will campaign on spending cuts, and asked whether the avenues simply have to be exhausted first. Rogoff said that was the book's central thesis.
The US has as much government debt as all the other major advanced economies combined, and interest payments are already larger than defense spending, with the Congressional Budget Office projecting them to become the largest expenditure.
Neither party can win by proposing austerity, which he defined as not running a 6% or 7% budget deficit. "And yeah I even though it seems impossible for something to happen I think we're just going to keep both feet on the accelerator until it does."
The trigger he expects is a shock landing on an economy that has no room. High interest rates already, debt beyond anything previously seen, a paralyzed political system, rates starting to move up, and investors watching the lack of reaction.
The outcomes he listed run from inflation to financial repression, which he described as waking up to "all your Treasury bill holdings at a low rate that you didn't know you wanted" — a tax by another name, used by Japan and to some extent Europe.
He gave a ten-year window in the book and has since moved it forward. "I've moved that up a little bit since I've wrote written the book."
The reason he thinks nothing happens before then is the voter. The US could raise taxes or cut spending, but nobody wants to, and after such a long lull the voters will not believe it until they see it.
The historical company is not reassuring. Spain went bankrupt when it was super rich; so did France. He was the IMF's chief economist when Argentina defaulted, where "Argentine citizens had more money in Miami alone than the Argentine government owed" and could not get at it.
The size of the eventual bill is arithmetic. Losing half a percentage point or a point on the interest rate when you owe $40 trillion, he said, "That's real money every year."
Bonus Insights
Asked to choose between cutting spending to pay off the debt and repaying in cheaper dollars, he did not hesitate. "We're never going to do the first one." It would only be the second, he said, though he allowed that taxes might rise too. Smead's addition was that paying back in lesser coin is what monarchs did.
Smead's own theory, which he says nobody has disproved, is that a traditional recession is hard to produce while the government runs a 6% to 7% deficit in the middle of an expansion — historically a wartime or deep-recession number. Rogoff agreed nothing looks close to a recession, and said the political dynamic behind the debt is what matters: "It doesn't matter who wins in 2028. We're going to have massive deficits until there's a problem."
On where interest rates go, he refuses the single-factor story. He debated the secular stagnation camp in the 2010s — Paul Krugman, Larry Summers, Olivier Blanchard — and credits Summers for at least saying to issue long-term debt just in case, which the others did not. His summary of the history: "Interest rates are low until they're not low."
His colleagues' model says aging brings rates down; Charles Goodhart's answer is that the old now live longer and cost more. Rogoff's own guess is that real rates are as likely to rise as to fall.
Smead offered a statistic from the Federal Reserve's Z.1 report: equities as a share of US household financial assets have never been higher, with prior peaks in 1969, 1999 and 2021. His point was that people extrapolate the market they are in, and could wake up in five years to higher rates and a crowding-out effect from government debt.
Rogoff writes a book every eight or ten years and says he will try to be faster. His monthly Project Syndicate column runs in 50 countries, he has no large social media presence, and he is planning a limited-series podcast with Allison Schrager through the Manhattan Institute on how history and global issues explain what is happening in the US.
Smead disclosed that his firm owns UniCredit and that he had lunch with its chief executive, Andrea Orcel; his argument is that bank mergers are doing what European policymakers could not, since a banking union never arrived. Rogoff agreed on Orcel — "he's a brilliant banker and a great communicator" — and said he spoke at Smead's investor event in February.
Rogoff's bottom line is that the dollar keeps its crown and loses market share, that the cheap borrowing which made the crown worth having has already gone, and that the United States will not act on its debt until a shock arrives — at which point the choices are inflation, financial repression, or both.
Products, Companies & Tools Mentioned
UniCredit (The Italian bank Smead's firm owns, used as his example of bank mergers achieving the integration Europe's policymakers could not; Rogoff praised its chief executive, Andrea Orcel)
Tether (Named as the most widely used stablecoin, and Rogoff's example of why: it is not traceable)
Books & Resources Mentioned
Our Dollar, Your Problem: An Insider's View of Seven Turbulent Decades of Global Finance, and the Road Ahead – Kenneth Rogoff (The book under discussion, finished before the 2024 election and published in April 2025)
This Time Is Different: Eight Centuries of Financial Folly – Carmen Reinhart and Kenneth Rogoff (His earlier bestseller on financial crises across history, named in the introduction)
The Curse of Cash – Kenneth Rogoff (Also named in the introduction; the underground-economy research behind his crypto argument sits in the same territory)
Manias, Panics and Crashes – Charles Kindleberger (Rogoff calls it maybe his most famous piece, written while he was taking Kindleberger's course at MIT)
Sapiens – Yuval Noah Harari (The long chapter arguing that money is money because people believe it is, which Rogoff calls beautifully written and misconceived)
The Draghi report on EU competitiveness (Made the case for a common bankruptcy code and named banking and telecoms as European weak points; Enrico Letta's later report repeated it)
Rogoff's Project Syndicate column (Monthly, published in 50 countries — his answer to where readers can follow him)
The Federal Reserve's Z.1 financial accounts (Smead's source for equities as a share of household financial assets being at a record)
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