Monetary Matters with Jack Farley “A Huge Problem for Everybody” | Paul Krugman on Currency Devaluation, Artificial Intelligence, Kevin Warsh Nomination, & More
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Feb 15, 2026 
Paul Krugman, Nobel Prize–winning economist and New York Times columnist, offers sharp takes on the dollar’s durability and why it resists dethronement. He explores China’s weak yuan and global imbalances. He weighs tariffs versus currency adjustment, the Fed’s credibility around Kevin Warsh, and how AI-driven capex, demographics, and fiscal pressures reshape interest rates and economic risks.
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Interest Rates Changed The Deficit Math
- Fiscal deficits were sustainable when real interest rates were far below growth, but that arithmetic changed by 2026.
- Higher interest rates relative to growth make large persistent deficits much more concerning.
Borrow For Investment In Low-Rate Downturns
- When interest rates are near zero and the economy is weak, use fiscal deficits to invest in long-term public goods.
- Borrow to fund infrastructure and social investments during low-rate slumps.
R-Star Has Risen, But Reasons Are Unclear
- R-star appears to have risen but the causes are unclear; AI-driven capex and changing responsiveness of the economy to rates may play roles.
- There's significant fog around estimating the natural rate and monetary policy effects.