NEW YORK CITY - Kenneth Rogoff never intended to be a player policy. But since the financial crisis hit, politicians and experts discussed research of Harvard Economist when warned against the dangers of too much debt.
Expect to hear his name more between now and August 2. This is the date limit that Treasury Department gave Congress for rearing ceiling without risking a default value of the debt of the Federal Government.
Research with his colleague Economist Carmen Reinhart-Rogoff revealed that overcome a financial crisis often takes more time that anyone expected. Deep debts weigh on economic growth, making countries vulnerable to another. "It is like being a little more run", he said. "It is easier to get sick."
Rogoff and Reinhart has also revealed that when the debt of the country is superior to 90 percent of its economy, the economy often turns sluggish. The United States are now at 96%.
These findings, written in bestseller of 2009 of the pair, "this time is different: eight centuries of financial folly," took a life of its own in political circles. When you hear Republican leaders like Rep. Paul Ryan to say that United States needs to cut spending, they often cite work Rogoff.
For its part, Rogoff does not believe that evil of the debt of the country can be solved quickly or through deep spending cuts. "You just cannot do this night," he said. "If tighten us too quickly, we would slam growth."
Rogoff, 58, has served as Chief of the Monetary Fund Economist International for two years and as Advisor to John McCain 2008 presidential campaign. In graduate studies at the Institute of technology of Massachusetts, Rogoff tied friendship with Ben Bernanke, the current President of the Federal Reserve.
In an interview with The Associated Press, Rogoff spoke of the debt ceiling, the errors committed in the EDF from $ 600 billion stimulus effort and his obsession with chess. Here are edited excerpts:
Q: in the United States struck the 14.3 billion debt ceiling now, and the Treasury Board is now cash movement autour to stave off default until August. What is the average for the markets?
A: I do not think that this means anything immediately, but it does not appear as way to run the Government. I think that they should raise the debt ceiling unconditionally, despite the fact that certain reforms are desperately needed. When you are the greatest debtor world there are repercussions when you take on board and push people (with the idea) that you can only consider a default value.
Q: you are not in the artificial CAP or the debt ceiling, because it threatens to creditors. But the debt is still your biggest concerns on the economy, Yes?
A: the greatest concern at this time is huge over-indebtedness. Any U.S. public debt, including State and local, is higher than the second world war. But equally important, debt private (such as credit cards and mortgages) is close to his record. If you combine the two, it is has never been something like it.
Q: what is the risk to the United States having so much debt? Other countries, such as the Japan, have large debt burden.
A: he causes not automatically a crisis, but it is certainly weighs on recovery. Very roughly speaking, when a country has the public debt more than 90 per cent of the income growth is about 1 per cent lower for very long.
Q: a Government cannot increase spending as easily if it has too much debt, say you makes a vulnerable country. How so?
A: this is the fundamental problem. You can see when a country loses tax revenues and need to borrow money. They have wars and natural disasters and will have to spend to pay for things, for reconstruction of bridges. You do not want to be forced in the midst of a recession to increase tax rates (to pay for these things). It is a disaster.
Q: the politicians use your work to make deep budget spending now to trim our debt. Do you agree?
A: If tighten us too soon, the economy will implode on itself. We are not here to two years, and we should not try to get it in two years. But at the same time the idea that we can worry about the future, later than false.
It is not only the reduction of expenditures. Decision of the tax is probably need to go back. We need to clean up the tax system.
Q: where would you start?
A: I am one of many economists that promote the disposal of the current system entirely for a form of a flat tax with a franchise high for low income earners.
And you know what? The rich should pay more. They pay less under the current system because there are these smoke and mirrors, they can hide behind all these deductions and all these ways to avoid taxes.
Q: your friend and former classmate Ben Bernanke has taken flak for the most recent program easing quantitative, known as the QE 2. EC that make efforts to keep prices from falling, by encouraging the $ 600 billion in the economy?
A: I thought that EQ 2 was quite right when they did. But the quantitative easy way works best is you announce a goal and then say that you will do everything that it takes (to achieve). If you do not have a blank cheque, there is not much. Because all the rejection of China, the Germans and Sarah Palin, they could not continue. The Fed had a free hand, and he has not one.
A second problem was that the Fed was not attentive enough to tell the market clearly, "this will solve all your problems." The biggest error they was the suggestion that part of the way QE operates is through the stock exchange.
There are all these traders on Wall Street who said: "This means that the Fed has our return." The Fed is just determined to drive the market. ?
Q: what is the problem with traders think that?
A: well, the Fed does not have their backs. The Fed is concerned with stable inflation. Therefore, the concern is now when these traders see that EQ 2 is coming to an end, they will really depressed and all their trades will be blur? It is the concern.
First q press conference. Bernanke in April, he joked that playing chess with you was a "big mistake". Most people don't know that you are a great master International. Bernanke never asked for a revenge?
No, I went cold Turkey after leaving the school. I taught my children how to play (chess), but that is all. I am completely addicted and need to keep me playing. I think always about chess all the time.
Q: has your expertise in chess helped inform your work?
A: chess teaches you to think about what the other person is thinking. Obviously, there are other means outside of chess to come to that. Chess is just a disciplined approach. The IMF, we have had crises in Argentina, Brazil, Turkey and the Lebanon. And he helped to put myself in their position: "What they think."
