Can Trump drive down bond yields?

Katie Martin (0:06)

Pushkin. If you want to sound clever at cocktail parties right now, there's only one thing for it. You're going to have to talk about, drum roll, the Mar-a-Lago Accord, a master plan sketched out by economists close to very stable genius Donald Trump to weaken the dollar and reorder the global financial system. If that sounds terrifying, it is. And this week, even the guy who came up with the idea suggested it's probably not going to happen. Dear listeners, you need to know the score and we've got you covered. So today on the show, we're asking Mar-a-Lago or Mar-a-no-go.

Rob Armstrong (0:46)

See what I did there?

Katie Martin (0:48)

This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist here at FT Towers in London.

Aiden Reiter (0:57)

Was that whole intro just a setup so you could say Mar-a-no-go?

Katie Martin (1:04)

Pretty much, and I stole that joke also from Deutsche Bank.

Rob Armstrong (1:09)

Katie, you're lucky that cancel culture is dead in the Trump administration, because that would be the start of hashtag cancel Katie.

Aiden Reiter (1:15)

Yes.

Katie Martin (1:16)

Let me finish my intro.

Aiden Reiter (1:17)

Okay, fine.

Katie Martin (1:19)

I am joined down the line by Rob Armstrong, but also by his underling, the man who makes him look clever, Aiden Reiter. Guys, tell me, have you inadvertently been added to any WhatsApp groups with, for example, the US Treasury Secretary discussing plans to revalue the dollar?

Aiden Reiter (1:35)

Nobody leaks anything to me. It is so embarrassing. Unhedged needs to be mistakenly added to the chats of the Chairman of the Fed, Scott Bessent, the Treasury Secretary who will be discussing today. We are very happy to serve our country by being inadvertently included in high level discussions.

Katie Martin (1:58)

We're not actually on signal and we don't have a proper WhatsApp group. So what you can do is just email us your plans to revalue the dollar at unhedged.ft.com. unhedged.ft.com. So Wall Street wonks, tedious people like you and me, we've all been banging on about the Mar-a-Lago Accord for weeks. Should we have been? That is a reasonable question, but guys, give me the basics here.

Aiden Reiter (2:24)

Okay. Stephen Moran is a Wall Street guy, and he wrote a paper called something like A User's Guide to Restructuring the World Economy that described different ways a Trump administration might be able to eliminate the United States very large current account deficits with some of its trading partners. It went on about tariffs and various other things, but the very relevant bit here is it suggested that at some point after tariffs had applied pressure to the rest of the world, the United States could call its major trading partners to the table and insist that they take action to rebalance global trade and economics, something on the model of the Plaza Accords of the 1980s.

Rob Armstrong (3:17)

Yes, and perhaps ironically, Donald Trump once owned the Plaza Hotel.

Katie Martin (3:21)

Yes.

Rob Armstrong (3:22)

So, this is all real estate play too.

Aiden Reiter (3:24)

Yeah. And the idea, I think was something like this. You say to them, we need you to systematically strengthen your currencies. Yes. Much as the Japanese were convinced to allow their currency to strengthen in the 1980s, which makes dollar exports more competitive.

Rob Armstrong (3:45)

Yes. So, release your reserves of dollars onto the market. That makes the dollar worth less comparatively, because there's a larger supply on the market, which inherently weakens the dollar, and by doing so, strengthens other people's currencies.

Aiden Reiter (3:57)

There were other bits and pieces, but this was the main argument.

Rob Armstrong (4:00)

And it happened.

Katie Martin (4:00)

The central thing here is that the central premise is that a strong dollar is a problem. Yes. And being the world's reserve currency is, as he describes it, a burden. Communities, quote unquote, have been blighted by the fact in their minds that the dollar is too strong, and therefore manufacturing has withered away in the US. So they, and again, they draw a pretty direct line between that and the US opioid crisis. So everything is related. So this immiseration of the population in parts of the US is in their minds, at least in large part, down to the fact that they think the dollar is too strong.

So what they say is, we need to weaken the dollar, but also there's a kind of side hustle here, whereby they want to apply a kind of pay-for-play model to US government bonds. So this paper from Moran, who's now, I believe, chair of the Council of Economic Advisers to the president, he talks about, okay, say there were lots of investors out there, sort of semi-government investors out there in the world, that own treasuries, they own US government bonds. What if we flipped some of these 10, 20, 30 year government bonds into 100 year bonds or perpetual bonds and said, if you buy them, then we will be nice to you with tariffs and also we will provide you with military backup in the event that something were to go wrong. So you'd be underneath the US security umbrella.