Winehole23
03-15-2025, 12:15 PM
the Tory Telegraph:
There’s nothing new under the sun, so it won’t surprise you to know that we’ve been here before. Rewind to the mid-1980s, when Ronald Reagan was the US president, and America was cursed by a similarly large trade deficit, and thanks to the administration’s expansionary fiscal policies, a relatively strong currency buoyed by high interest rates.
Under threat of tariffs, the US’s four largest trading partners at the time – Japan, Germany, France and the UK – were persuaded to intervene in currency markets to weaken the dollar, an agreement that became known as the Plaza Accord.
https://img-s-msn-com.akamaized.net/tenant/amp/entityid/AA1AYhX7.img?w=534&h=334&m=6&x=929&y=309&s=310&d=310
Former US president Ronald Reagan pushed Washington’s trade partners to devalue the dollar - Dennis Cook/AP
It worked; from peak to trough, the dollar lost about 40pc of its trade weighted value. That success has galvanised calls from some in the Trump administration for a sequel, already dubbed for obvious reasons the “Mar-a-Lago Accord”.
Yet the world is a very different place today, not least because of the arrival of another 10-ton gorilla on the global stage in the shape of the People’s Republic of China.
In a world where even allies are turning on each other, the necessary consensus for Plaza 2.0 would be hard to impossible to achieve.
To be sustainable, moreover, would require the US to run artificially low interest rates and everywhere else to run them high. This would be doubly inflationary in the US and is scarcely likely to appeal to either Europe or China, where economic conditions are currently weak.
Alternatively, countries could be strong-armed into submission. Stephen Miran, who was confirmed last week as chairman of the US council of economic advisers, suggests that surplus countries should be forced to peg their currencies against the dollar at a beneficial rate to the US by threatening them with even higher trade tariffs should they refuse.
Yet even if this form of competitive devaluation via blackmail were initially successful, it wouldn’t necessarily stop the flow of foreign capital into US markets, and would therefore be hard to maintain.https://www.msn.com/en-us/money/markets/trump-s-game-plan-for-devaluing-the-mighty-dollar/ar-AA1AYAil
Yanis Varoufakis, leftist former finance minister of Greece:
According to Trump, America imports too much because it is a good global citizen which feels obliged to provide foreigners with the reserve dollar assets they need. In short, US manufacturing has been in decline because America is a good Samaritan: its workers and middle class suffer so that the rest of the world can grow at its expense.
But the dollar’s hegemonic status also underpins American exceptionalism, as Trump knows and appreciates. Foreign central banks’ purchases of US Treasuries enable the US government to run deficits and pay for an oversized military that would bankrupt any other country. And by being the linchpin of international payments, the hegemonic dollar enables the President to exercise the modern-day equivalent of gunboat diplomacy: to sanction at will any person or government.
This is not enough, in Trump’s eyes, to offset the suffering of American producers who are undercut by foreigners whose central bankers exploit a service (dollar reserves) America provides them for free to keep the dollar overvalued. For Trump, America is undermining itself for the glory of geopolitical power and the opportunity to accumulate other people’s profits. These imported riches benefit Wall Street and realtors but only at the expense of the people who elected him twice: Americans in the heartlands who produce the “manly” goods such as steel and automobiles that a nation needs to remain viable.
And that’s not the worst of Trump’s concerns. His nightmare is that this hegemony will be fleeting. Back in 1988, while promoting his Art of the Deal on Larry King and Oprah Winfrey, he bemoaned: “We are a debtor nation. Something’s going to happen over the next number of years in this country, because you can’t keep on losing $200 billion a year.” Since then, he has become increasingly convinced that a terrible tipping point is approaching: as America’s output diminishes in relative terms, the global demand for the dollar rises faster than US incomes. The dollar then has to appreciate even faster to keep up with the reserve needs of the rest of the world. This can’t go on forever.
For when US deficits exceed some threshold, foreigners will panic. They will sell their dollar-denominated assets and find some other currency to hoard. Americans will be left amid international chaos with a wrecked manufacturing sector, derelict financial markets and an insolvent government. This nightmare scenario has convinced Trump that he is on a mission to save America: that he has a duty to usher in a new international order. And that’s the gist of his plan: to effect in 2025 a decisive anti-Nixon Shock — a global shock that cancels out the work of his predecessor by terminating the Bretton Woods system in 1971 which spearheaded the era of financialisation.
Central to this new global order would be a cheaper dollar that remains the world’s reserve currency — this would lower US long-term borrowing rates even more. Can Trump have his cake (a hegemonic dollar and low-yielding US Treasuries) and eat it (a depreciated dollar)? He knows that the markets will never deliver this of their own accord. Only foreign central banks can do this for him. But to agree to do this, they need to be shocked into action first. And that’s where his tariffs come in.
This is what his critics do not understand. They mistakenly think that he thinks that his tariffs will reduce America’s trade deficit on their own. He knows they will not. Their utility comes from their capacity to shock foreign central bankers into reducing domestic interest rates. Consequently, the euro, the yen and the renminbi will soften relative to the dollar. This will cancel out the price hikes of goods imported into the US, and leave the prices American consumers pay unaffected. The tariffed countries will be in effect paying for Trump’s tariffs.
But tariffs are only the first phase of his masterplan. With high tariffs as the new default, and with foreign money accumulating in the Treasury, Trump can bide his time as friends and foes in Europe and Asia clamour to talk. That’s when the second phase of Trump’s plan kicks in: the grand negotiation.
Unlike his predecessors, from Carter to Biden, Trump disdains multilateral meetings and crowded negotiations. He is a one-on-one man. His ideal world is a hub and spokes model, like a bicycle wheel, in which none of the individual spokes makes much of a difference to the functioning of the wheel. In this view of the world, Trump feels confident that he can deal with each spoke sequentially. With tariffs on the one hand and the threat of removing America’s security shield (or deploying it against them) on the other, he feels he can get most countries to acquiesce.
Acquiesce to what? To appreciating their currency substantially without liquidating their long-term dollar holding. He will not only expect each spoke to cut domestic interest rates, but will demand different things from different interlocutors. From Asian countries that currently hoard the most dollars, he will demand they sell a portion of their short-term dollar assets in exchange for their own (thus appreciating) currency. From a relatively dollar-poor eurozone riddled with internal divisions that increase his negotiating power, Trump may demand three things: that they agree to swap their long-term bonds for ultra-long-term or possibly even perpetual ones; that they allow German manufacturing to migrate to America; and, naturally, that they buy a lot more US-made weapons.
Can you picture Trump’s smirk at the thought of this second phase of his masterplan? When a foreign government acquiesces to his demands, he will have chalked up another victory. And when some recalcitrant government holds out, the tariffs stay put, yielding his Treasury a steady stream of dollars which he can dispense with any way he deems fit (since Congress controls only tax revenues). Once this second phase of his plan is complete, the world will have been divided into two camps: one camp shielded by American security at the cost of an appreciated currency, the loss of manufacturing plants, and forced purchases of US exports including weapons. The other camp will be strategically closer perhaps to China and Russia, but still connected to the US through reduced trade which still gives the US regular tariff income.
https://www.yanisvaroufakis.eu/2025/02/21/donald-trumps-economic-masterplan-unherd/
There’s nothing new under the sun, so it won’t surprise you to know that we’ve been here before. Rewind to the mid-1980s, when Ronald Reagan was the US president, and America was cursed by a similarly large trade deficit, and thanks to the administration’s expansionary fiscal policies, a relatively strong currency buoyed by high interest rates.
Under threat of tariffs, the US’s four largest trading partners at the time – Japan, Germany, France and the UK – were persuaded to intervene in currency markets to weaken the dollar, an agreement that became known as the Plaza Accord.
https://img-s-msn-com.akamaized.net/tenant/amp/entityid/AA1AYhX7.img?w=534&h=334&m=6&x=929&y=309&s=310&d=310
Former US president Ronald Reagan pushed Washington’s trade partners to devalue the dollar - Dennis Cook/AP
It worked; from peak to trough, the dollar lost about 40pc of its trade weighted value. That success has galvanised calls from some in the Trump administration for a sequel, already dubbed for obvious reasons the “Mar-a-Lago Accord”.
Yet the world is a very different place today, not least because of the arrival of another 10-ton gorilla on the global stage in the shape of the People’s Republic of China.
In a world where even allies are turning on each other, the necessary consensus for Plaza 2.0 would be hard to impossible to achieve.
To be sustainable, moreover, would require the US to run artificially low interest rates and everywhere else to run them high. This would be doubly inflationary in the US and is scarcely likely to appeal to either Europe or China, where economic conditions are currently weak.
Alternatively, countries could be strong-armed into submission. Stephen Miran, who was confirmed last week as chairman of the US council of economic advisers, suggests that surplus countries should be forced to peg their currencies against the dollar at a beneficial rate to the US by threatening them with even higher trade tariffs should they refuse.
Yet even if this form of competitive devaluation via blackmail were initially successful, it wouldn’t necessarily stop the flow of foreign capital into US markets, and would therefore be hard to maintain.https://www.msn.com/en-us/money/markets/trump-s-game-plan-for-devaluing-the-mighty-dollar/ar-AA1AYAil
Yanis Varoufakis, leftist former finance minister of Greece:
According to Trump, America imports too much because it is a good global citizen which feels obliged to provide foreigners with the reserve dollar assets they need. In short, US manufacturing has been in decline because America is a good Samaritan: its workers and middle class suffer so that the rest of the world can grow at its expense.
But the dollar’s hegemonic status also underpins American exceptionalism, as Trump knows and appreciates. Foreign central banks’ purchases of US Treasuries enable the US government to run deficits and pay for an oversized military that would bankrupt any other country. And by being the linchpin of international payments, the hegemonic dollar enables the President to exercise the modern-day equivalent of gunboat diplomacy: to sanction at will any person or government.
This is not enough, in Trump’s eyes, to offset the suffering of American producers who are undercut by foreigners whose central bankers exploit a service (dollar reserves) America provides them for free to keep the dollar overvalued. For Trump, America is undermining itself for the glory of geopolitical power and the opportunity to accumulate other people’s profits. These imported riches benefit Wall Street and realtors but only at the expense of the people who elected him twice: Americans in the heartlands who produce the “manly” goods such as steel and automobiles that a nation needs to remain viable.
And that’s not the worst of Trump’s concerns. His nightmare is that this hegemony will be fleeting. Back in 1988, while promoting his Art of the Deal on Larry King and Oprah Winfrey, he bemoaned: “We are a debtor nation. Something’s going to happen over the next number of years in this country, because you can’t keep on losing $200 billion a year.” Since then, he has become increasingly convinced that a terrible tipping point is approaching: as America’s output diminishes in relative terms, the global demand for the dollar rises faster than US incomes. The dollar then has to appreciate even faster to keep up with the reserve needs of the rest of the world. This can’t go on forever.
For when US deficits exceed some threshold, foreigners will panic. They will sell their dollar-denominated assets and find some other currency to hoard. Americans will be left amid international chaos with a wrecked manufacturing sector, derelict financial markets and an insolvent government. This nightmare scenario has convinced Trump that he is on a mission to save America: that he has a duty to usher in a new international order. And that’s the gist of his plan: to effect in 2025 a decisive anti-Nixon Shock — a global shock that cancels out the work of his predecessor by terminating the Bretton Woods system in 1971 which spearheaded the era of financialisation.
Central to this new global order would be a cheaper dollar that remains the world’s reserve currency — this would lower US long-term borrowing rates even more. Can Trump have his cake (a hegemonic dollar and low-yielding US Treasuries) and eat it (a depreciated dollar)? He knows that the markets will never deliver this of their own accord. Only foreign central banks can do this for him. But to agree to do this, they need to be shocked into action first. And that’s where his tariffs come in.
This is what his critics do not understand. They mistakenly think that he thinks that his tariffs will reduce America’s trade deficit on their own. He knows they will not. Their utility comes from their capacity to shock foreign central bankers into reducing domestic interest rates. Consequently, the euro, the yen and the renminbi will soften relative to the dollar. This will cancel out the price hikes of goods imported into the US, and leave the prices American consumers pay unaffected. The tariffed countries will be in effect paying for Trump’s tariffs.
But tariffs are only the first phase of his masterplan. With high tariffs as the new default, and with foreign money accumulating in the Treasury, Trump can bide his time as friends and foes in Europe and Asia clamour to talk. That’s when the second phase of Trump’s plan kicks in: the grand negotiation.
Unlike his predecessors, from Carter to Biden, Trump disdains multilateral meetings and crowded negotiations. He is a one-on-one man. His ideal world is a hub and spokes model, like a bicycle wheel, in which none of the individual spokes makes much of a difference to the functioning of the wheel. In this view of the world, Trump feels confident that he can deal with each spoke sequentially. With tariffs on the one hand and the threat of removing America’s security shield (or deploying it against them) on the other, he feels he can get most countries to acquiesce.
Acquiesce to what? To appreciating their currency substantially without liquidating their long-term dollar holding. He will not only expect each spoke to cut domestic interest rates, but will demand different things from different interlocutors. From Asian countries that currently hoard the most dollars, he will demand they sell a portion of their short-term dollar assets in exchange for their own (thus appreciating) currency. From a relatively dollar-poor eurozone riddled with internal divisions that increase his negotiating power, Trump may demand three things: that they agree to swap their long-term bonds for ultra-long-term or possibly even perpetual ones; that they allow German manufacturing to migrate to America; and, naturally, that they buy a lot more US-made weapons.
Can you picture Trump’s smirk at the thought of this second phase of his masterplan? When a foreign government acquiesces to his demands, he will have chalked up another victory. And when some recalcitrant government holds out, the tariffs stay put, yielding his Treasury a steady stream of dollars which he can dispense with any way he deems fit (since Congress controls only tax revenues). Once this second phase of his plan is complete, the world will have been divided into two camps: one camp shielded by American security at the cost of an appreciated currency, the loss of manufacturing plants, and forced purchases of US exports including weapons. The other camp will be strategically closer perhaps to China and Russia, but still connected to the US through reduced trade which still gives the US regular tariff income.
https://www.yanisvaroufakis.eu/2025/02/21/donald-trumps-economic-masterplan-unherd/