Harvard economics professor Kenneth Rogoff has warned that the U.S. defaulting on its debt obligations could spark a global financial crisis. In an interview published Thursday, Rogoff was asked whether the current U.S. debt crisis and its potential default could “bring back the risks of a global recession”; he replied “absolutely”. The professor of Economics and Maurits C. Boas Chair of International Economics at Harvard University explained that Republican lawmakers are trying to get everything all at once, a strategy which is not a typical government spending process.
U.S. Treasury Secretary Janet Yellen has said that the Treasury may not be able to pay all of the government’s bills as early as June 1 and the IMF cautioned last week that a U.S. default would have “very serious repercussions”. Moreover, the Congressional Budget Office similarly warned that the government could default on its debt in the first two weeks of June. Moreover, the former president Donald Trump has urged Republican lawmakers to let the U.S. default on its debt if the Democrats do not agree to spending cuts.
Speaking on past examples of U.S. default, Rogoff pointed out that the country has defaulted before; one example was in the early 1930s when President Franklin Roosevelt changed the gold price from $20 to $35 and 'we defaulted on the gold clause while we paid the debt in dollars, which was worth a lot less'. Another instance was 'after the Revolutionary War when the U.S. was forming', when Alexander Hamilton, the first secretary of the U.S. Treasury, only paid some of the inherited colonial debt. In addition, the professor noted that 'we’ve also had high inflation recently' resulting in the devaluation of U.S. debts.
In conclusion, it’s clear that the issues surrounding U.S. debt are multifacted and comples as a possible U.S. default could lead to a significant financial crisis with “very serious repercussions”. It is uncertain how this situation will unfold and whether the country’s debt crisis will be resolved in time.
Ivanna Patel
- 2023-05-15
Global Financial Crisis in Sight if U.S. Default Occurs
Harvard professor Kenneth Rogoff has warned that the U.S. defaulting on its debt could lead to a global economic crisis. U.S. Treasury Secretary Janet Yellen has said that the government may not be able to pay bills as early as June and the IMF has cautioned about the repercussions of a default.
