Harvard economist Rogoff: The U.S. debt has entered a "vicious cycle," and only a crisis can force reforms.

Harvard University economist Kenneth Rogoff warned that the worsening fiscal dilemma in the United States is unlikely to be resolved in the short term, unless a major crisis erupts that is sufficient to awaken voters and force them to demand change. In an interview on Friday, Rogoff stated that part of the reason U.S. debt has accumulated and gone unaddressed for years is the nearly "religious" obsession within the economics community that believes interest rates will continue to decline indefinitely. However, he also pointed out that even as interest rates have rebounded from their lows and continued to rise, political leaders have failed to make corresponding adjustments. "The direction of interest rates has reversed, but decision-making in Washington remains stagnant," Rogoff said. It is known that he previously served as the chief economist at the International Monetary Fund (IMF), and made these remarks while attending the annual symposium hosted by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyoming. Rogoff's comments come at a time of soaring U.S. public debt. Last week, the total U.S. debt surpassed $40 trillion, shocking even some former "deficit doves." The continued rise in interest rates30-year Treasury bond auctions have reached the highest borrowing costs since 2001has further increased interest payments, creating a potential "vicious cycle": worsening debt prompts investors to demand higher yields, and higher yields exacerbate the debt burden. Additionally, it is widely believed in Washington that voters are unwilling to accept tax increases or significant spending cuts to reduce the deficit. Rogoff noted that the current pricing of long-term government bonds reflects a new reality: once a crisis strikes, the policy space for the Federal Reserve and the U.S. government will be extremely limited. He further mentioned that a variety of "shock" scenarios could emerge in the next five years, including cyber warfare, disruptive changes brought about by artificial intelligence (AI), and geopolitical conflicts, all of which could drive interest rates to surge dramatically. "The moment a crisis erupts is when the shock arrives and you lack resilience," Rogoff stated. He also remarked that compared to the situations that might arise in the next five years, the current war in Iran "is merely a small shock." When discussing Social Security reform, Rogoff was equally candid. He pointed out that substantial reforms to welfare programs must first have a crisis as a catalyst, as voters currently do not recognize the urgency of the issues. Rogoff stated in his book "Our Dollar, Your Problem" that he predicted that the situation "will ultimately culminate in some kind of crisis" before reform becomes politically feasible. He also added that if someone runs in the 2028 election with the platform of fixing the Social Security system, the result would simply be "voters looking perplexed and not buying it at all."