March 12, 2025 • 25 mins
This week, we try to understand a possible "Mar-a-Lago Accord" and the views of Stephen Miran, nominee to lead the White House Council of Economic Advisers. Host Stephanie Flanders is joined by Shawn Donnan, senior writer for economics with Bloomberg, and Mark Sobel, the US chairman of the Official Monetary and Financial Institutions Forum.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:08):
Dodor Myron, you are now recognized.
Speaker 3 (00:10):
My view is that reindustriizing America is imperative, not only
for economic reasons, but for national security. Economists must accept
that we are a nation with an economy, not merely
an economy with a nation to reindustrialize. Policy must focus
on making the United States the best place on Earth
to do business.
Speaker 4 (00:37):
I'm Stephanie Flanders, head of Government and Economics at Bloomberg,
and welcome to Trump Economics, the podcast that looks at
the economic world of Donald Trump, how he's already shaped
the global economy, and what on earth is going to
happen next. Well, this week we're asking just how exactly
Donald Trump would like global trade and finance to operate,
(00:57):
and how likely is he to get there. In just
a few weeks, Donald Trump has turned one of the
world's oldest security relationships, the Western Alliance, on its head.
He's also unleashed a slew of tariff threats on China, Canada,
and Mexico, with more to come. And at the same time,
talk has intensified over a so called Mara Lago accord
to deliberately weaken the dollar through a grand international bargain. Well,
(01:21):
at Trumpnomics, we think all three of these things might
be connected. And we think that because we've read a
paper written in November by Stephen Myron which first came
up with the idea of that Mara Lago accord. Now,
back then Myron was a former US Treasury advisor working
as a strategist in the private sector, but now he's
poised to be the head of President Trump's Council of
(01:42):
Economic Advisors. And the currency piece of that paper has
been much discussed since then, especially the last couple of weeks,
but not so much the grander reordering of the world
trade and financial system, which is actually what the paper's
mainly about, and I would have thought could be pretty
appealing to Donald Trump too. So what is that new
(02:04):
world order for trade and finance sketched out in that paper?
Does it make any sense intellectually or practically? And how
might it change the world If any or all of
that were actually attempted To help understand Stephen Moron's worldview
and what it could mean for currencies for the global
economic order, we've got two brilliant voices, as you'd expect.
(02:27):
Welcome back to Sean Donnan, senior writer for Economics with Bloomberg. Shan,
thanks again for joining us.
Speaker 5 (02:33):
Wonderful to be here.
Speaker 4 (02:34):
And Mark Sobel, the US chairman of OMFIF, which is
the Official Monetary and Financial Institutions Forum. He's also a
former colleague of mine at the US Treasury who always
answered the toughest questions I had, and an International Monetary
Fund official. He's been, i think it's fair to say,
at the forefront or certainly in the room for international
(02:55):
financial diplomacy for twenty years or more. Thanks very much
for joining US, Mark Pleasure concent So Sean briefly, how
is security and economics interlinked in Myron and potentially Donald
(03:16):
Trump's view of the world.
Speaker 5 (03:17):
Stephen Myron's paper, which came out in November and which
reads now, is a kind of very good piece of
job interviewing for the job he has now. The title
was you know, how to rebalance the Global Trading System?
And it laid out this kind of sequence of events
that they wanted to go through. And the first was
based on a recognition that in their mind, the dollar
(03:39):
is overvalued and that that's a problem for the United
States and its competitiveness around the world, and they wanted
to tackle that in two ways. One was to use
tariffs to kind of rebalance trade, to draw more investment
to the United States, to rebuild the industrial capacity here
in the United States, and it's kind of hard industrial
(04:00):
power in the world. But they also recognize that when
you increase tariffs, you are going to inevitably cause the
dollar to appreciate. That's kind of the laws of economics.
Mark can walk you through that and much more than
I can. But they're gonna end up with a stronger dollar,
and as a result of that, they needed to come
up with a plan to then weaken the dollar afterwards.
(04:22):
And that's where this mari A Lago accord comes through.
Everyone's focused on this mari A Lago accord. Very few
people have focused on how Stephen Myron is talking about
really erasing the boundary between America and how it uses
the economic power and how it uses its national security
(04:42):
power and to get what it wants. And this is
what we're seeing now. We're seeing Donald Trump use tariffs,
use the threat of withdrawing security guarantees. We're seeing that
play out in Ukraine, We're seeing that play out in
the Transatlantic relationship. There's big questions about what it might
mean for the future of Taiwan.
Speaker 2 (05:00):
And things like that.
Speaker 5 (05:01):
But that's the new model, and it's all about how
do you get what Donald Trump wants? How do you
get to his vision of the global economy.
Speaker 4 (05:08):
That is definitely the question that a lot of people
in Washington are asking themselves. Mark just on this piece,
if you read the paper, what comes across very strongly
is in effect this idea that America has been hugely
disadvantaged by being the world's most important country. You know
that having this reserve dollar status and being the sort
(05:30):
of lynchpin also of the security system, but specifically the
currency and the US financial system being at the heart
of everything has ended up forcing the currency to be
overvalued and made US manufacturing less competitive cost ordinary Americans jobs.
The basic idea that the US dollar is overvalued and
(05:51):
it has something to do with America's status in the
global financial system. Is that true? Would you say that
adds up?
Speaker 1 (05:58):
The dollar is the world's global reserve and financing currency.
It is so because of the properties of the US economy.
We're the largest economy in the world, we have good
rule of law, we've had respect for institutions, We've had
kind of decent macro policies. We've got the deepest, most
open liquid capital markets in the world, et cetera. So
(06:22):
that brings capital into the United States, and in that sense,
it pushes up the dollar. So I do think that
there is something to the idea that says that because
of the attractiveness of the United States and receiving capital,
that the dollar is overvalued. Whatever that means.
Speaker 4 (06:45):
I guess some people would have seen like the Big
mac Index and things like that, which you know, but
just basically, it means that you're when you compare prices
across countries, the US looks out of whag.
Speaker 1 (06:55):
Yes, of course, there's no precise way to measure that,
but and I do believe that you could argue, and
I think the advance has made this point that.
Speaker 2 (07:03):
It's a subsidied.
Speaker 1 (07:05):
Consumer and attacks on manufacturers and whatnot, and you know,
historically it has given rise or further impetist to protectionist
tendencies in the United States, which is something that we
were always dealing with at Treasury. My big problem, however,
with going where you are is there's no reason why
(07:28):
all countries should have current account bounces or whatnot. Some
countries are going to have deficits, some countries are going
to have surpluses. And when you think about it, some
countries with deficits, well, it's going to reflect demographics, energy endowments,
strengths of institutions, economic policies, et cetera. So the IMF
has this calculation. It does, and it says the current
(07:51):
account norm of the US should be a minus two
percent of GDP deficit. But in fact, if you look
at our deficit right now, it's pushing four percent. So
four percent isn't two percent? And why is it for
or not two? And that gets back down to questions
of just bad fiscal policy. For example, and Myron and others,
(08:15):
they're all talking about the reserve currency or the financing
currency rule the dollar causing problems. They don't talk about
fiscal deficits. We have massive, irresponsible fiscal deficits these days.
As far as I'm concerned, we should focus on implementing
decent policies at home.
Speaker 4 (08:34):
To go back a little bit on that reserve currency piece,
Donald Trump has made clear he wants to keep the
dollar's global reserve currency status. He's even talked about punishing
countries that start talking about moving away from the dollar,
but he also wants to make it weaker. Is there
a sort of straightforward contradiction there? Could you force people
(08:55):
to keep treating the dollar as a reserve currency while
still making it weaker and maybe us using lots of
measures to support that.
Speaker 1 (09:05):
Doesn't it depend on kind of how you weakend. I mean,
currency markets. Currencies go up and down. They go up
and down all the time, but that's a different issue.
Let us say than calling for devaluation, which to me
implies official action to conscientiously lower the dollar. And as
you mentioned, this idea of one hundred percent tax on
(09:26):
those who would shun the dollar. To me, I don't
really understand how you can call for devaluation and one
hundred percent taxes and say that that is consistent with
preserving the reserve currency role of the dollar. So I
don't think that it's inconsistent to say we're going to
run a decent fiscal policy which may have the result
(09:48):
of lowering the dollars value. But I do think that
calling for devaluation and taxes on others, and some of
Myron's ideas like one hundred years zero coupon bonds or
taxes and fees on users. I think those are fundamentally
(10:09):
inconsistent with the reserve currency preserving the preserve currency role of.
Speaker 2 (10:14):
The dour Sean.
Speaker 4 (10:15):
And say this, having already talked about it for fifty minutes,
we just want to get too obsessed with the details
of this document. But I think it is interesting to
sort of think about how Donald Trump's first few weeks
has chimed with what was in that paper. There's quite
a lot of areas where Myron's kind of assuming that
the things that cause a lot of volatility or uncertainty,
like the tariffs will be done gradually. Well, seems to
(10:38):
be a greater appetite for volatility and uncertainty from the
administration so far in the way it's addressed that. Arguably,
you could say the same on the security front. How
much do you think is following the script suggested by Myron?
Speaker 5 (10:52):
I think you can definitely see bits of the script
in there, right. I mean, you can definitely see this
broad idea of we're going to break down the barrier
between national security policy and economic policy, and we're going
to use one to reinforce the other, and vice versa.
Speaker 2 (11:07):
At the same time.
Speaker 5 (11:08):
What we've seen is the same thing we saw there
in the first Trump administration, and that is a pretty
chaotic policy making a lot of differing internal voices. We
are seeing again, whether it's on tariffs, this kind of
the rolling out of really aggressive tariffs on Canada and Mexico,
and then within forty eight hours they're kind of rolling
(11:30):
back in a big way. And with Ukraine, a live
debate playing out via leaks and Oval Office comments on
what a peace deal might look like, what a minerals
agreement with Ukraine might look like. I would say there
is one kind of overarching aim above it all, and
(11:50):
that is that Donald Trump wants America to be feared again.
And that's his vision of power, and that applies to tariffs,
that applies to national security. It's not that he wants
America to be this kind of beacon on the hill
of democracy and free markets and that the world kind
of flocks towards. He wants to be able to dictate
(12:12):
how the world runs, and he believes that fear is
the most powerful thing to see and we're seeing elements
of that clearly in all sorts of policies that have
rolled out. But Beneath that kind of broad goal, it
all looks pretty messy, and it's not clear that these
goals kind of operate or can operate together.
Speaker 1 (12:32):
Can I come back to the mirone article a little
bit and Sean, it's obviously not a zero some world
we live in.
Speaker 4 (12:38):
But to be more granular, I think it's a zero
some world that Donald Trump lives in. Genuinely.
Speaker 1 (12:43):
Well, yes, But the point I wanted to make I
want to go back to being somewhat of a point.
He had economics type, unlike you guys in this discussion,
I wanted to talk more about some things I don't
like about the Myron article. Sure, the implication is that
the dollar's global role as bad for America. The French
always talked about the exorbitant privilege. I believe the dollar's
(13:06):
role is a net plus, not exorbitant. You know, we
get some maybe interest rates are lower, we're shielded from
foreign exchange risk, we can use the dollar for geopolitical
leverage via sanctions. The dollars are valued, but on balance
net plus, if we're trying to disrupt alliances and everything,
(13:27):
I just don't know what is the end goal, the
end vision.
Speaker 4 (13:32):
Donald Trump famously approaches pretty much everything as a bargain
is about a deal, and it's about the relative strength
of each side in a deal. And by definition, you
have most leverage in doing a deal with your strongest
partners because they're the ones who are already most have
most to lose by damaging the relationship with you. So
(13:54):
you could say it may be counterintuitive, but you could
say it is a natural place to start if you
have the deeply transactional view that Donald Trump has, and
if you feel kind of fundamentally that the US shouldn't
pay any price for being the strongest economy. Yes, it
gets to be the reserve currency, but it should be
(14:15):
paid for by other people. If America is the strongest,
and they've been clever enough to be the strongest, and
by the way, also willing to put loads of American
troops at risk that other countries are not willing to
put at risk in defending the free world, then why
not have everyone else pay for that. It's like America's
performing a service and you make your allies who are
getting the most value out of you pay the most.
(14:36):
I mean mark. It may not be an attractive vision,
but it's perfectly rational.
Speaker 1 (14:40):
First of all, I have to say I've always thought it,
certainly in recent decades, that Europe needed to step up more,
step up more on defense.
Speaker 2 (14:47):
So I have no problem with that.
Speaker 4 (14:49):
He's only one who's got them to do it, though,
combination of him and.
Speaker 1 (14:52):
Putin, well, I guess the more Putin than him. I
think the magnitudes the way of getting it done are
very questionable. But again, if you're going to tell me
that the Trump vision is to get others to pay
for the US security guarantee, maybe that's a vision. Of course,
(15:12):
it seems now that they're all going their own way
and rejecting the US, and this is going to have
really harmful of consequences I think for global relations and economics,
and it's not going to make us more secure, and
it's not going to make us more prosperous.
Speaker 4 (15:26):
Okay, but take the reserve currency thing. The world benefits
from there being a reserve currency. You know, we can
denominate the cost of oil in a single currency. Everyone
knows what they're talking about when they talk about ten dollars.
Why shouldn't the world pay for that? Why does America
have to pay the negative of you know, being overvalued
or whatever one might identify.
Speaker 2 (15:45):
The United States benefits from that.
Speaker 1 (15:46):
The last decades have been remarkable for the history of
mankind and prosperity, and so the eighty years of the
postwar US hegemony has been nothing to sneeze at.
Speaker 5 (15:59):
It depends where you're sitting in the US economy right
as to how you benefit from the US being or
are hurt by the US being a reserve currency. If
you're a manufacturer, you can make an argument that you
are hurt because your export's are less competitive as a
result of a strong dollar, although other people will point
out that actually you can buy imported components in intermediate
(16:21):
goods for cheaper as a result of a strong dollar,
and that doesn't matter as much in terms of competitives.
If you're a homeowner or you're looking to buy a
home in the United States, you probably benefit from lower
interest rates than you would otherwise as a result of
demand for US assets from overseas. Likewise, if you're an
entrepreneur like Elon Musk, chances are your cost of capital
(16:45):
growing up was lower than it might be in other
places as a result of the US's reserve currency status.
So the issue that we have here now is that
it's the manufacturers and the protectionists who are driving the
view of the dollar, and and and it's a downside
as a reserve currency. And you know, at some point
(17:06):
that might shift again. And this gets to a bigger
issue which I think we was gonna last beyond Donald Trump,
and that is America's power in the world and the
place of the dollar in the world is based on
decades of trust, right of building trust, It's based on
legal certainty. It's based on this idea of America as
(17:31):
a kind of having a coherent vision of the world
that's changed over the last decade. Right, We've kind of
flipped back and forth. We go from a big government
paradigm under Joe Biden to now a small government paradigm
under Donald Trump. We've gone from a kind of gentle
(17:51):
giant view of a superpower under Joe Biden and Barack
Obama to one of you know, the big gorilla kind
of rampage through the world under Donald Trump. And I
think that issue of trust, that issue of certainty, and
what America is and what America wants and what America
offers that going away is perhaps more damaging to American
(18:15):
power than any of these kind of little bits of
policy that people like Stephen Meyron lay out in this paper.
Speaker 4 (18:22):
Okay, so there's a final chunk of things that I
just want to get to because all of this sounds
a bit ephemeral and sort of we're talking about this
paper and is it or is it not relevant for
Donald Trump, and we've probably gone as far as we
can go on that. What I'm thinking about as a
result of this conversation is, Okay, what we have learned
about Donald Trump in the last few weeks is when
he decides that he really wants something, or he wants
to be known for something like finding peace in Ukraine,
(18:47):
he will go further than anyone expected to make that happen,
including being very tough on very close allies in a
way that we wouldn't expect. If he decides that the
next big thing he wants is a weeker dollar, then
we will probably all be talking a lot more about
a mar Lago Accord or some version of that mark.
(19:09):
If Donald Trump woke up one morning and decided he
wanted a week a dollar as much as he wants
to be known for a piece deal in Ukraine, how
could it go about that? I mean how much, what
might that look like and wouldn't have any chance of success.
Speaker 1 (19:25):
So this week he's managed to get the dollar down
by creating growth fears and undermining our long standing relationships.
I've already mentioned undermining the underpinnings of the dollars status
would be one way to do it. And more to
the point of what I think you're asking, Obviously he
can job own the dollar down. He's probably already done that.
That's not going to be very effective. The Treasury could
(19:47):
sell dollars and buy foreign currency. Treasury doesn't have that
many dollars, but they could mobilize the Exchange Stabilization Fund
balance sheet in different ways. The Fed can print unlimited dollars.
It wouldn't likely play ball, but it could be done.
Speaker 4 (20:02):
Theoretically, does network When one country does it by themselves.
Speaker 2 (20:05):
It's certainly less effective.
Speaker 1 (20:08):
I don't think that central banks and financial authorities and
the G three really think that intervention is all that
effective absent fundamental policy shifts. Maybe there could be some
concerted type of intervention operation these days, but again, central
bank's target inflation, not exchange rates.
Speaker 4 (20:28):
We've already seen in the Ukraine context that he's sort
of crossed a lot of lines that people didn't expect
to be crossed. And it has to be said, the
Ukraine invasion has caused everyone to do that. We've done
things like seizing sovereign central bank reserves that we've never
done before. We did that to the Russian Central Bank,
So I'm sure at the IMF that caused a bit
of headaches and head scratching whether or not we should
(20:49):
go there. What are the kind of out of the
box tools he could use to pressure other countries to collaborate,
even if they didn't particularly want a week a dollar.
Speaker 1 (20:58):
I recently had to speak on this topic, and what
I started focusing on is not so much currency action
per se, but how to associate currency issues with trade measures.
So under Obama and Trump, there were currency chapters as
part of trade deals or discussions.
Speaker 4 (21:17):
I didn't even know that.
Speaker 1 (21:18):
So TPP made tackling currency manipulation a principal negotiating objective,
and there was a kind of a side understanding and
TPP before it's derailed that the finance ministers would meet
and discuss these issues.
Speaker 4 (21:33):
That was a trade deal that was negotiated under the
Biden of Minnesota. That's right, yes, with Asian economies.
Speaker 1 (21:41):
But now under USMCA, there was a currency chapter inside
the deal. If you remember the Phase one deal with China,
there was a currency chapter. Chinese just committed to doing
what they were doing, but but whatnot?
Speaker 2 (21:56):
So there's that. Then there was under.
Speaker 1 (21:59):
The Trump administration at the very end, there were currency
undervaluation countervailing duties a terrible idea as far as I'm concerned,
but they did assess currency evaluation.
Speaker 4 (22:12):
Could you make it harder for countries to access the
central Bank the FEDS swap facilities, I don't know. There
must be a range of things that the US has
within its gift that are beneficial for other countries financially.
Speaker 5 (22:27):
Look in my senses, he cares about the reputation of
the dollar and the kind of branding of the dollar
as a reserve currency. And he cares about having a
vote of confidence from financial markets, whether that's currency markets
or whether that's equity markets or bond markets. There's a
kind of branding concern around the dollar. I think what
he cares about in terms of the level of the
(22:50):
dollar depends a little bit on who the last person
he was talking to cares about the easiest way, and
Mark pointed to this, the easiest way to bring down
the value of the dollar, and also by the way
the trade deficit is to have a recession in the
United States.
Speaker 2 (23:06):
And one of the.
Speaker 5 (23:07):
Things that you've seen creep into markets in recent days
is this question of whether the Trump administration is somehow
intentionally trying to tank the economy through some of its policies,
whether it's tariffs, whether it's immigration, whether it's the kind
of austerity campaign that Elon Musk and Doze or are
(23:28):
waging on the federal government, but in terms of workforce
and spending, and that that somehow is all about bringing
the dollar and the ten year yields down to a
level that somehow is of more advantage to the US
economy in the long term. That seems like a pretty
destructive way to go about it. I have no evidence
that this is actually what the Trump administration is thinking,
(23:51):
but it gets to the point of.
Speaker 2 (23:53):
The surest way to do some of the.
Speaker 5 (23:56):
Things that Stephen Myron lays out, other people around Donald
Trump lays out is to kind of attack America's place
in the world and its growth at home. And it's
broader exceptionalism.
Speaker 4 (24:11):
Well One thing I did learn from spending a few
years looking at things from the other side of the
journalistic divide as an official US Treasury is people don't
even in this administration. I suspect people are not sitting
plotting to try and force a US recession. But we
shall see. Mark Soble, Sean Donnan, thank you so much.
(24:32):
I am struck by the quote actually at the end
of that paper by Stephen Myra, and he says there
is a path by which the Trump administration can reconfigure
the global trading and financial system to America's benefit, but
it is narrow and will require careful planning, precise execution,
and attention to steps to minimize adverse consequences. Well, we'll
(24:54):
wait and see all of that then.
Speaker 2 (24:55):
Thank you very much, Thank you, thanks so much for
having me.
Speaker 4 (25:09):
Thanks for listening to Trumpnomics from Bloomberg. It was hosted
by me, Stephanie Flanders, and I was joined this week
by Sean Donnan and Mark Sobel. Trump Andomics is produced
by Summer, Sadi and Moss and with help from Chris
Martlu and sound design by Blake Maple's Brendan Francis Newnham
is our executive producer, and to help others find the show.
Please rate it highly and review it wherever you listen
(25:32):
to your podcast
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:08):
Dodor Myron, you are now recognized.
Speaker 3 (00:10):
My view is that reindustriizing America is imperative, not only
for economic reasons, but for national security. Economists must accept
that we are a nation with an economy, not merely
an economy with a nation to reindustrialize. Policy must focus
on making the United States the best place on Earth
to do business.
Speaker 4 (00:37):
I'm Stephanie Flanders, head of Government and Economics at Bloomberg,
and welcome to Trump Economics, the podcast that looks at
the economic world of Donald Trump, how he's already shaped
the global economy, and what on earth is going to
happen next. Well, this week we're asking just how exactly
Donald Trump would like global trade and finance to operate,
(00:57):
and how likely is he to get there. In just
a few weeks, Donald Trump has turned one of the
world's oldest security relationships, the Western Alliance, on its head.
He's also unleashed a slew of tariff threats on China, Canada,
and Mexico, with more to come. And at the same time,
talk has intensified over a so called Mara Lago accord
to deliberately weaken the dollar through a grand international bargain. Well,
(01:21):
at Trumpnomics, we think all three of these things might
be connected. And we think that because we've read a
paper written in November by Stephen Myron which first came
up with the idea of that Mara Lago accord. Now,
back then Myron was a former US Treasury advisor working
as a strategist in the private sector, but now he's
poised to be the head of President Trump's Council of
(01:42):
Economic Advisors. And the currency piece of that paper has
been much discussed since then, especially the last couple of weeks,
but not so much the grander reordering of the world
trade and financial system, which is actually what the paper's
mainly about, and I would have thought could be pretty
appealing to Donald Trump too. So what is that new
(02:04):
world order for trade and finance sketched out in that paper?
Does it make any sense intellectually or practically? And how
might it change the world If any or all of
that were actually attempted To help understand Stephen Moron's worldview
and what it could mean for currencies for the global
economic order, we've got two brilliant voices, as you'd expect.
(02:27):
Welcome back to Sean Donnan, senior writer for Economics with Bloomberg. Shan,
thanks again for joining us.
Speaker 5 (02:33):
Wonderful to be here.
Speaker 4 (02:34):
And Mark Sobel, the US chairman of OMFIF, which is
the Official Monetary and Financial Institutions Forum. He's also a
former colleague of mine at the US Treasury who always
answered the toughest questions I had, and an International Monetary
Fund official. He's been, i think it's fair to say,
at the forefront or certainly in the room for international
(02:55):
financial diplomacy for twenty years or more. Thanks very much
for joining US, Mark Pleasure concent So Sean briefly, how
is security and economics interlinked in Myron and potentially Donald
(03:16):
Trump's view of the world.
Speaker 5 (03:17):
Stephen Myron's paper, which came out in November and which
reads now, is a kind of very good piece of
job interviewing for the job he has now. The title
was you know, how to rebalance the Global Trading System?
And it laid out this kind of sequence of events
that they wanted to go through. And the first was
based on a recognition that in their mind, the dollar
(03:39):
is overvalued and that that's a problem for the United
States and its competitiveness around the world, and they wanted
to tackle that in two ways. One was to use
tariffs to kind of rebalance trade, to draw more investment
to the United States, to rebuild the industrial capacity here
in the United States, and it's kind of hard industrial
(04:00):
power in the world. But they also recognize that when
you increase tariffs, you are going to inevitably cause the
dollar to appreciate. That's kind of the laws of economics.
Mark can walk you through that and much more than
I can. But they're gonna end up with a stronger dollar,
and as a result of that, they needed to come
up with a plan to then weaken the dollar afterwards.
(04:22):
And that's where this mari A Lago accord comes through.
Everyone's focused on this mari A Lago accord. Very few
people have focused on how Stephen Myron is talking about
really erasing the boundary between America and how it uses
the economic power and how it uses its national security
(04:42):
power and to get what it wants. And this is
what we're seeing now. We're seeing Donald Trump use tariffs,
use the threat of withdrawing security guarantees. We're seeing that
play out in Ukraine, We're seeing that play out in
the Transatlantic relationship. There's big questions about what it might
mean for the future of Taiwan.
Speaker 2 (05:00):
And things like that.
Speaker 5 (05:01):
But that's the new model, and it's all about how
do you get what Donald Trump wants? How do you
get to his vision of the global economy.
Speaker 4 (05:08):
That is definitely the question that a lot of people
in Washington are asking themselves. Mark just on this piece,
if you read the paper, what comes across very strongly
is in effect this idea that America has been hugely
disadvantaged by being the world's most important country. You know
that having this reserve dollar status and being the sort
(05:30):
of lynchpin also of the security system, but specifically the
currency and the US financial system being at the heart
of everything has ended up forcing the currency to be
overvalued and made US manufacturing less competitive cost ordinary Americans jobs.
The basic idea that the US dollar is overvalued and
(05:51):
it has something to do with America's status in the
global financial system. Is that true? Would you say that
adds up?
Speaker 1 (05:58):
The dollar is the world's global reserve and financing currency.
It is so because of the properties of the US economy.
We're the largest economy in the world, we have good
rule of law, we've had respect for institutions, We've had
kind of decent macro policies. We've got the deepest, most
open liquid capital markets in the world, et cetera. So
(06:22):
that brings capital into the United States, and in that sense,
it pushes up the dollar. So I do think that
there is something to the idea that says that because
of the attractiveness of the United States and receiving capital,
that the dollar is overvalued. Whatever that means.
Speaker 4 (06:45):
I guess some people would have seen like the Big
mac Index and things like that, which you know, but
just basically, it means that you're when you compare prices
across countries, the US looks out of whag.
Speaker 1 (06:55):
Yes, of course, there's no precise way to measure that,
but and I do believe that you could argue, and
I think the advance has made this point that.
Speaker 2 (07:03):
It's a subsidied.
Speaker 1 (07:05):
Consumer and attacks on manufacturers and whatnot, and you know,
historically it has given rise or further impetist to protectionist
tendencies in the United States, which is something that we
were always dealing with at Treasury. My big problem, however,
with going where you are is there's no reason why
(07:28):
all countries should have current account bounces or whatnot. Some
countries are going to have deficits, some countries are going
to have surpluses. And when you think about it, some
countries with deficits, well, it's going to reflect demographics, energy endowments,
strengths of institutions, economic policies, et cetera. So the IMF
has this calculation. It does, and it says the current
(07:51):
account norm of the US should be a minus two
percent of GDP deficit. But in fact, if you look
at our deficit right now, it's pushing four percent. So
four percent isn't two percent? And why is it for
or not two? And that gets back down to questions
of just bad fiscal policy. For example, and Myron and others,
(08:15):
they're all talking about the reserve currency or the financing
currency rule the dollar causing problems. They don't talk about
fiscal deficits. We have massive, irresponsible fiscal deficits these days.
As far as I'm concerned, we should focus on implementing
decent policies at home.
Speaker 4 (08:34):
To go back a little bit on that reserve currency piece,
Donald Trump has made clear he wants to keep the
dollar's global reserve currency status. He's even talked about punishing
countries that start talking about moving away from the dollar,
but he also wants to make it weaker. Is there
a sort of straightforward contradiction there? Could you force people
(08:55):
to keep treating the dollar as a reserve currency while
still making it weaker and maybe us using lots of
measures to support that.
Speaker 1 (09:05):
Doesn't it depend on kind of how you weakend. I mean,
currency markets. Currencies go up and down. They go up
and down all the time, but that's a different issue.
Let us say than calling for devaluation, which to me
implies official action to conscientiously lower the dollar. And as
you mentioned, this idea of one hundred percent tax on
(09:26):
those who would shun the dollar. To me, I don't
really understand how you can call for devaluation and one
hundred percent taxes and say that that is consistent with
preserving the reserve currency role of the dollar. So I
don't think that it's inconsistent to say we're going to
run a decent fiscal policy which may have the result
(09:48):
of lowering the dollars value. But I do think that
calling for devaluation and taxes on others, and some of
Myron's ideas like one hundred years zero coupon bonds or
taxes and fees on users. I think those are fundamentally
(10:09):
inconsistent with the reserve currency preserving the preserve currency role of.
Speaker 2 (10:14):
The dour Sean.
Speaker 4 (10:15):
And say this, having already talked about it for fifty minutes,
we just want to get too obsessed with the details
of this document. But I think it is interesting to
sort of think about how Donald Trump's first few weeks
has chimed with what was in that paper. There's quite
a lot of areas where Myron's kind of assuming that
the things that cause a lot of volatility or uncertainty,
like the tariffs will be done gradually. Well, seems to
(10:38):
be a greater appetite for volatility and uncertainty from the
administration so far in the way it's addressed that. Arguably,
you could say the same on the security front. How
much do you think is following the script suggested by Myron?
Speaker 5 (10:52):
I think you can definitely see bits of the script
in there, right. I mean, you can definitely see this
broad idea of we're going to break down the barrier
between national security policy and economic policy, and we're going
to use one to reinforce the other, and vice versa.
Speaker 2 (11:07):
At the same time.
Speaker 5 (11:08):
What we've seen is the same thing we saw there
in the first Trump administration, and that is a pretty
chaotic policy making a lot of differing internal voices. We
are seeing again, whether it's on tariffs, this kind of
the rolling out of really aggressive tariffs on Canada and Mexico,
and then within forty eight hours they're kind of rolling
(11:30):
back in a big way. And with Ukraine, a live
debate playing out via leaks and Oval Office comments on
what a peace deal might look like, what a minerals
agreement with Ukraine might look like. I would say there
is one kind of overarching aim above it all, and
(11:50):
that is that Donald Trump wants America to be feared again.
And that's his vision of power, and that applies to tariffs,
that applies to national security. It's not that he wants
America to be this kind of beacon on the hill
of democracy and free markets and that the world kind
of flocks towards. He wants to be able to dictate
(12:12):
how the world runs, and he believes that fear is
the most powerful thing to see and we're seeing elements
of that clearly in all sorts of policies that have
rolled out. But Beneath that kind of broad goal, it
all looks pretty messy, and it's not clear that these
goals kind of operate or can operate together.
Speaker 1 (12:32):
Can I come back to the mirone article a little
bit and Sean, it's obviously not a zero some world
we live in.
Speaker 4 (12:38):
But to be more granular, I think it's a zero
some world that Donald Trump lives in. Genuinely.
Speaker 1 (12:43):
Well, yes, But the point I wanted to make I
want to go back to being somewhat of a point.
He had economics type, unlike you guys in this discussion,
I wanted to talk more about some things I don't
like about the Myron article. Sure, the implication is that
the dollar's global role as bad for America. The French
always talked about the exorbitant privilege. I believe the dollar's
(13:06):
role is a net plus, not exorbitant. You know, we
get some maybe interest rates are lower, we're shielded from
foreign exchange risk, we can use the dollar for geopolitical
leverage via sanctions. The dollars are valued, but on balance
net plus, if we're trying to disrupt alliances and everything,
(13:27):
I just don't know what is the end goal, the
end vision.
Speaker 4 (13:32):
Donald Trump famously approaches pretty much everything as a bargain
is about a deal, and it's about the relative strength
of each side in a deal. And by definition, you
have most leverage in doing a deal with your strongest
partners because they're the ones who are already most have
most to lose by damaging the relationship with you. So
(13:54):
you could say it may be counterintuitive, but you could
say it is a natural place to start if you
have the deeply transactional view that Donald Trump has, and
if you feel kind of fundamentally that the US shouldn't
pay any price for being the strongest economy. Yes, it
gets to be the reserve currency, but it should be
(14:15):
paid for by other people. If America is the strongest,
and they've been clever enough to be the strongest, and
by the way, also willing to put loads of American
troops at risk that other countries are not willing to
put at risk in defending the free world, then why
not have everyone else pay for that. It's like America's
performing a service and you make your allies who are
getting the most value out of you pay the most.
(14:36):
I mean mark. It may not be an attractive vision,
but it's perfectly rational.
Speaker 1 (14:40):
First of all, I have to say I've always thought it,
certainly in recent decades, that Europe needed to step up more,
step up more on defense.
Speaker 2 (14:47):
So I have no problem with that.
Speaker 4 (14:49):
He's only one who's got them to do it, though,
combination of him and.
Speaker 1 (14:52):
Putin, well, I guess the more Putin than him. I
think the magnitudes the way of getting it done are
very questionable. But again, if you're going to tell me
that the Trump vision is to get others to pay
for the US security guarantee, maybe that's a vision. Of course,
(15:12):
it seems now that they're all going their own way
and rejecting the US, and this is going to have
really harmful of consequences I think for global relations and economics,
and it's not going to make us more secure, and
it's not going to make us more prosperous.
Speaker 4 (15:26):
Okay, but take the reserve currency thing. The world benefits
from there being a reserve currency. You know, we can
denominate the cost of oil in a single currency. Everyone
knows what they're talking about when they talk about ten dollars.
Why shouldn't the world pay for that? Why does America
have to pay the negative of you know, being overvalued
or whatever one might identify.
Speaker 2 (15:45):
The United States benefits from that.
Speaker 1 (15:46):
The last decades have been remarkable for the history of
mankind and prosperity, and so the eighty years of the
postwar US hegemony has been nothing to sneeze at.
Speaker 5 (15:59):
It depends where you're sitting in the US economy right
as to how you benefit from the US being or
are hurt by the US being a reserve currency. If
you're a manufacturer, you can make an argument that you
are hurt because your export's are less competitive as a
result of a strong dollar, although other people will point
out that actually you can buy imported components in intermediate
(16:21):
goods for cheaper as a result of a strong dollar,
and that doesn't matter as much in terms of competitives.
If you're a homeowner or you're looking to buy a
home in the United States, you probably benefit from lower
interest rates than you would otherwise as a result of
demand for US assets from overseas. Likewise, if you're an
entrepreneur like Elon Musk, chances are your cost of capital
(16:45):
growing up was lower than it might be in other
places as a result of the US's reserve currency status.
So the issue that we have here now is that
it's the manufacturers and the protectionists who are driving the
view of the dollar, and and and it's a downside
as a reserve currency. And you know, at some point
(17:06):
that might shift again. And this gets to a bigger
issue which I think we was gonna last beyond Donald Trump,
and that is America's power in the world and the
place of the dollar in the world is based on
decades of trust, right of building trust, It's based on
legal certainty. It's based on this idea of America as
(17:31):
a kind of having a coherent vision of the world
that's changed over the last decade. Right, We've kind of
flipped back and forth. We go from a big government
paradigm under Joe Biden to now a small government paradigm
under Donald Trump. We've gone from a kind of gentle
(17:51):
giant view of a superpower under Joe Biden and Barack
Obama to one of you know, the big gorilla kind
of rampage through the world under Donald Trump. And I
think that issue of trust, that issue of certainty, and
what America is and what America wants and what America
offers that going away is perhaps more damaging to American
(18:15):
power than any of these kind of little bits of
policy that people like Stephen Meyron lay out in this paper.
Speaker 4 (18:22):
Okay, so there's a final chunk of things that I
just want to get to because all of this sounds
a bit ephemeral and sort of we're talking about this
paper and is it or is it not relevant for
Donald Trump, and we've probably gone as far as we
can go on that. What I'm thinking about as a
result of this conversation is, Okay, what we have learned
about Donald Trump in the last few weeks is when
he decides that he really wants something, or he wants
to be known for something like finding peace in Ukraine,
(18:47):
he will go further than anyone expected to make that happen,
including being very tough on very close allies in a
way that we wouldn't expect. If he decides that the
next big thing he wants is a weeker dollar, then
we will probably all be talking a lot more about
a mar Lago Accord or some version of that mark.
(19:09):
If Donald Trump woke up one morning and decided he
wanted a week a dollar as much as he wants
to be known for a piece deal in Ukraine, how
could it go about that? I mean how much, what
might that look like and wouldn't have any chance of success.
Speaker 1 (19:25):
So this week he's managed to get the dollar down
by creating growth fears and undermining our long standing relationships.
I've already mentioned undermining the underpinnings of the dollars status
would be one way to do it. And more to
the point of what I think you're asking, Obviously he
can job own the dollar down. He's probably already done that.
That's not going to be very effective. The Treasury could
(19:47):
sell dollars and buy foreign currency. Treasury doesn't have that
many dollars, but they could mobilize the Exchange Stabilization Fund
balance sheet in different ways. The Fed can print unlimited dollars.
It wouldn't likely play ball, but it could be done.
Speaker 4 (20:02):
Theoretically, does network When one country does it by themselves.
Speaker 2 (20:05):
It's certainly less effective.
Speaker 1 (20:08):
I don't think that central banks and financial authorities and
the G three really think that intervention is all that
effective absent fundamental policy shifts. Maybe there could be some
concerted type of intervention operation these days, but again, central
bank's target inflation, not exchange rates.
Speaker 4 (20:28):
We've already seen in the Ukraine context that he's sort
of crossed a lot of lines that people didn't expect
to be crossed. And it has to be said, the
Ukraine invasion has caused everyone to do that. We've done
things like seizing sovereign central bank reserves that we've never
done before. We did that to the Russian Central Bank,
So I'm sure at the IMF that caused a bit
of headaches and head scratching whether or not we should
(20:49):
go there. What are the kind of out of the
box tools he could use to pressure other countries to collaborate,
even if they didn't particularly want a week a dollar.
Speaker 1 (20:58):
I recently had to speak on this topic, and what
I started focusing on is not so much currency action
per se, but how to associate currency issues with trade measures.
So under Obama and Trump, there were currency chapters as
part of trade deals or discussions.
Speaker 4 (21:17):
I didn't even know that.
Speaker 1 (21:18):
So TPP made tackling currency manipulation a principal negotiating objective,
and there was a kind of a side understanding and
TPP before it's derailed that the finance ministers would meet
and discuss these issues.
Speaker 4 (21:33):
That was a trade deal that was negotiated under the
Biden of Minnesota. That's right, yes, with Asian economies.
Speaker 1 (21:41):
But now under USMCA, there was a currency chapter inside
the deal. If you remember the Phase one deal with China,
there was a currency chapter. Chinese just committed to doing
what they were doing, but but whatnot?
Speaker 2 (21:56):
So there's that. Then there was under.
Speaker 1 (21:59):
The Trump administration at the very end, there were currency
undervaluation countervailing duties a terrible idea as far as I'm concerned,
but they did assess currency evaluation.
Speaker 4 (22:12):
Could you make it harder for countries to access the
central Bank the FEDS swap facilities, I don't know. There
must be a range of things that the US has
within its gift that are beneficial for other countries financially.
Speaker 5 (22:27):
Look in my senses, he cares about the reputation of
the dollar and the kind of branding of the dollar
as a reserve currency. And he cares about having a
vote of confidence from financial markets, whether that's currency markets
or whether that's equity markets or bond markets. There's a
kind of branding concern around the dollar. I think what
he cares about in terms of the level of the
(22:50):
dollar depends a little bit on who the last person
he was talking to cares about the easiest way, and
Mark pointed to this, the easiest way to bring down
the value of the dollar, and also by the way
the trade deficit is to have a recession in the
United States.
Speaker 2 (23:06):
And one of the.
Speaker 5 (23:07):
Things that you've seen creep into markets in recent days
is this question of whether the Trump administration is somehow
intentionally trying to tank the economy through some of its policies,
whether it's tariffs, whether it's immigration, whether it's the kind
of austerity campaign that Elon Musk and Doze or are
(23:28):
waging on the federal government, but in terms of workforce
and spending, and that that somehow is all about bringing
the dollar and the ten year yields down to a
level that somehow is of more advantage to the US
economy in the long term. That seems like a pretty
destructive way to go about it. I have no evidence
that this is actually what the Trump administration is thinking,
(23:51):
but it gets to the point of.
Speaker 2 (23:53):
The surest way to do some of the.
Speaker 5 (23:56):
Things that Stephen Myron lays out, other people around Donald
Trump lays out is to kind of attack America's place
in the world and its growth at home. And it's
broader exceptionalism.
Speaker 4 (24:11):
Well One thing I did learn from spending a few
years looking at things from the other side of the
journalistic divide as an official US Treasury is people don't
even in this administration. I suspect people are not sitting
plotting to try and force a US recession. But we
shall see. Mark Soble, Sean Donnan, thank you so much.
(24:32):
I am struck by the quote actually at the end
of that paper by Stephen Myra, and he says there
is a path by which the Trump administration can reconfigure
the global trading and financial system to America's benefit, but
it is narrow and will require careful planning, precise execution,
and attention to steps to minimize adverse consequences. Well, we'll
(24:54):
wait and see all of that then.
Speaker 2 (24:55):
Thank you very much, Thank you, thanks so much for
having me.
Speaker 4 (25:09):
Thanks for listening to Trumpnomics from Bloomberg. It was hosted
by me, Stephanie Flanders, and I was joined this week
by Sean Donnan and Mark Sobel. Trump Andomics is produced
by Summer, Sadi and Moss and with help from Chris
Martlu and sound design by Blake Maple's Brendan Francis Newnham
is our executive producer, and to help others find the show.
Please rate it highly and review it wherever you listen
(25:32):
to your podcast
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