Rogoff: New Entity To Control Governments Debts, and Stop Global Ponzi Schemes

Should more countries create independent fiscal advisory councils to infuse greater objectivity into national budget debates? Jailed swindler Bernie Madoff, although hardly reputable, summed declared that “the whole government is a Ponzi scheme, an opinion that many would agree with.

Ken Rogoff, in an article with Project Syndicate, says: "Perhaps this was just wishful thinking from a man who will die in prison after his own record-breaking $50 billion pyramid scheme collapsed in 2008. Personally, I suspect Madoff’s unenviable place in the record books will be secure for quite a while. Still, with many of the world’s largest governments facing a lethal combination of unsustainable conventional debt, unprecedented old-age pension obligations, and a downshift in growth, one has to wonder what the fiscal plan is".

Mr. Rogoff has just writne an article, "A Decadde of Debt", which is summarized in the above PS paper.

The authors advocate the creation of new entity to keep tabs on government's debts. They state that general government debt in the United States (including federal, state, and local debt), has surpassed the record 120% of GDP of the end of World War II!

In Japan, that figure is 200%, and that is before the earthquake.

Rogoff says It is high time to consider novel approaches. An independent and respected advisory council could, "in principle", force governments to acknowledge the hidden costs of government guarantees and off-balance sheet debts.

He cautions, however, that fiscal councils by themselves are not enough, no matter how well designed they are. "It will remain very tempting for each generation to say, 'My grandchildren will be two or three times richer than I, so who cares if they have to pay some debt?'

That sounds like Ponzi indeed, and yet, it is an attitude that is still prevalent in certain countries.

"To be sure, Bernie Madoff may yet be proved right, and his will not turn out to be the biggest Ponzi scheme ever"


Ken Rogoff is the author of "This Time is Different":