Odd Lots Podcast Summary
Episode: Raghuram Rajan on Surging Gold and Growing Risks to Financial Stability
Date: October 20, 2025
Hosts: Joe Weisenthal & Tracy Alloway
Guest: Raghuram Rajan (Professor, University of Chicago Booth School of Business; former Governor, Reserve Bank of India)
Location: Recorded live at the Institute for International Finance, Washington D.C.
Episode Overview
This live episode features Raghuram Rajan, one of the most respected voices in global finance, renowned for his prescient warnings about systemic risk ahead of the 2008 crisis. Rajan joins Joe and Tracy to unpack the recent surge in gold, the evolving nature of financial system risks, the credibility of dollar alternatives, political turmoil undermining central banks, and the paradoxes roiling global markets. The conversation ranges from gold’s rally to the froth in equities and private credit, central bank dilemmas, and the interplay between institutional strength and political consensus.
Key Themes & Discussion Points
1. The Surging Price of Gold
Main Points:
- Multipronged Drivers: Rajan rejects a single explanation, citing geopolitics, distrust in developed economies, central bank diversification, and easy financial conditions as overlapping causes.
- Geopolitical Fear: In the wake of Russia’s reserve seizure post-Ukraine, central banks fear “weaponization of payments” and are stockpiling physical gold, wary that FX reserves in foreign jurisdictions could be frozen overnight.
- Questioning ‘Safe Assets’: With rising debt and political tension in the US, EU, and Japan, the very concept of a “safe asset” is under scrutiny, further boosting gold.
- Speculative Froth: Rajan acknowledges that market hype is also a factor, as gold rallies alongside risk assets.
“So a movement to gold for that reason may have started initially, a lot of central banks moving, but there are other reasons... What’s the safe asset today if you look around the world?”
— Raghuram Rajan [02:55]
“Trust has broken down in the system and that’s part of the reason why people are trying to build alternatives which don’t make them dependent.”
— Raghuram Rajan [06:02]
2. Dollar Dominance, BRICS, and Dollar Alternatives
Main Points:
- TINA—There Is No Alternative: Despite attempts at diversification, the US Treasury market remains by far the deepest and most trusted. Alternatives (like BRICS) suffer from internal divisions and a lack of real cohesion.
- Weaponization of Finance: G7 sanctions and payment network exclusions have catalyzed efforts to build backups to SWIFT, even for countries not facing Western sanctions.
- On BRICS: Rajan is dismissive about its potential for delivering a true dollar alternative, citing political divergence, especially after including countries like Iran.
“It becomes much less cohesive and seems much more like an anti-west kind of structure, which certainly India doesn’t subscribe to, which Brazil probably doesn’t.”
— Raghuram Rajan [08:47]
3. Market Paradoxes: Concurrent All-Time Highs in Gold and Stocks
Main Points:
- Historical Cycles: Every major crisis follows a pattern of accommodative policy, risk buildup, and tightening leading to collapse.
- Unfinished Tightening: Rajan warns that the system has not absorbed a true tightening cycle; fiscal and regulatory interventions during the pandemic papered over cracks.
- Froth: Asset markets are “priced for perfection” as rate cuts are anticipated despite persistent inflation and uneven supply/demand conditions.
“Easy times, that’s when the risks build up. Tightening, that’s when it starts crumbling and it falls apart... The more the credit in the easy phase, the worse it is.”
— Raghuram Rajan [11:28]
“Going forward, you have a lot of froth in the system... and you have some risks that in fact it may go the other way.”
— Raghuram Rajan [14:49]
4. Is Policy Really Restrictive? Rethinking Monetary Tightening
Main Points:
- Financial Conditions Still Loose: Mainstream talk of restrictive policy is misleading—outside of mortgages, credit remains cheap and spreads tight.
- Central Bank Focus: Rajan is concerned that central banks are underestimating the build-up in risky lending and froth, deferring responsibility for financial stability.
“Whatever the Fed is saying about restrictive, yes, there’s one part where it’s really restrictive... But everywhere else, look at credit spreads, they’re really at historic lows.”
— Raghuram Rajan [19:18]
5. AI Investment Boom: Malinvestment or Productivity Miracle?
Main Points:
- Parallels to Dotcom Bubble: Rajan compares today’s AI infrastructure spree to the telecom/network bubble; postulates that much of today’s spending will lag in realizing returns.
- Central Bank Challenge: The pace of productive adoption is critical—central banks should incorporate this risk into rate decisions and supervision.
“It’s that transition from when the infrastructure is created to when people use it and pay for it, which is the big issue.”
— Raghuram Rajan [21:37]
6. Political Dysfunctions and Central Bank Autonomy
Main Points:
- Institutional Resilience Depends on Politics: Rajan debunks the myth that imported Western policies automatically build robust institutions in other countries—it’s political consensus that underpins strong central banks, not legal mandates alone.
- Threat to Central Bank Independence: He warns that rising polarization in industrialized countries weakens consensus and thus institutions: “Institutions cannot be made fully independent. They will always bend, and that’s what we’re seeing.”
“Our confidence in industrial country institutions should be directly proportional to our confidence in the politics being consensual. And that consensus... has broken down.”
— Raghuram Rajan [27:25]
“What would be harmful for the Fed is if it becomes obvious that the Fed created a recession... and that is why you bend.”
— Raghuram Rajan [29:21]
7. Lessons from Running India’s Central Bank: Personal and Political
Main Points:
- Withstanding Pressure: Rajan stresses the importance of backbone for central bankers, especially when targets of political lobbying for easy money.
- Explaining Decisions: Success requires clear communication about the trade-offs between supporting growth and curbing inflation.
“The problem when you’re making the decision is that there’s a single point of contact for people to pressure. And so I heard it from a lot of politicians... But you are meant to be their protection and it’s important you recognize that and have the backbone to stand up.”
— Raghuram Rajan [35:48]
8. India as a Manufacturing and Services Power: Constraints and Opportunities
Main Points:
- Infrastructure Improvements: Major cities match global standards, but power and workforce quality vary by region.
- Services Over Manufacturing: Labour arbitrage favors high-skilled workers—India’s services story may eclipse its manufacturing growth.
“Where’s the labor arbitrage today? It’s not in your low skilled worker, it’s in your high skilled worker... That’s why services are exploding.”
— Raghuram Rajan [38:20]
9. Where Could the Next Blow-up Emerge? Risks in Private Credit & Asset Bubbles
Main Points:
- Leverage Is the Trigger: Crises tend to propagate via leveraged markets. Weak credit standards and rapid private credit growth are flagged as areas of risk.
- Asset Prices and Credit: The dangerous combination is rising credit and rising asset prices—when both climb, the system is at risk.
“There’s been a huge increase in private credit... The IMF came out with some statements yesterday that a whole bunch of banks, their Tier one capital would be wiped out if there was serious defaults in the private credit industry.”
— Raghuram Rajan [43:38]
“The combination to worry about is an increase in asset prices and an increase in credit when you see both run for the hills.”
— Raghuram Rajan [46:38]
Notable Quotes & Memorable Moments
-
On Trust and Gold:
“If Canada can turn out to be antagonistic to a close neighbour, what about a country 5,000 miles away?”
— Raghuram Rajan [06:29] -
On BRICS and Dollar Alternatives:
“Forget about it. That’s not going to happen. May they build up a payment system which is different. Yeah... But does that mean I’m going to go towards a currency? Probably not.”
— Raghuram Rajan [09:50] -
On the Dangers of Financial Complacency:
“We are in that period when things look really good. The future looks infinitely rosy. And this is where you can see that credit standards may weaken.”
— Raghuram Rajan [44:55] -
Podcast Moment for Social Media:
“Run for the hills.”
— Raghuram Rajan [46:38]
Timestamps for Key Segments
- Intro & Purpose of Live Episode – 01:48 - 02:19
- Why is Gold Surging? – 02:55 - 04:25
- Reserve Diversification & Gold – 04:33 - 05:22
- Seizure of Russian Assets/Weaponization of Payments – 05:22 - 07:00
- The Enduring Allure of the Dollar – 07:00 - 08:14
- BRICS & Attempts at an Alternative System – 08:14 - 10:32
- Asset Price Paradoxes & Financial Stability Cycle – 10:32 - 15:19
- Is US Monetary Policy Really Restrictive? – 18:49 - 21:08
- Aid Investment Boom and Central Bank Challenge – 21:08 - 24:24
- Political Dysfunction & Central Bank Autonomy – 24:24 - 29:19
- Inflation Targeting and Political Considerations at the RBI – 35:32 - 37:45
- India’s Role in Manufacturing/Services – 37:45 - 41:40
- Trade, Tariffs, and Monetary Policy – 41:40 - 43:06
- Biggest Current Risks: Private Credit & Asset Prices – 43:06 - 47:13
Conclusion
In one of the most incisive Odd Lots episodes, Raghuram Rajan sounds the alarm on the fragility running through today’s financial system. He paints a picture of a world rife with mistrust, political volatility, and speculative excess—and with the ghosts of past crises lurking just beneath the surface. From the gold rush to the ascent of private credit, the conversation is wide ranging but tightly focused on the biggest question: Is the financial system once again building the seeds of its next crisis under the veneer of prosperity?
“The combination to worry about is an increase in asset prices and an increase in credit—when you see both, run for the hills.” — Raghuram Rajan [46:38]