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Four decades ago, the swanky Plaza Hotel in New York became famous in finance lore. On September 22 1985, the US government persuaded Britain, Japan, Germany and France to jointly devalue the dollar, to boost America’s industrial competitiveness.
Could this happen again? The idea is sparking endless gossip among financiers. Or as the Aberdeen investment group recently told clients: “There has been speculation about a new Plaza Accord — dubbed the ‘Mar-a-Lago Accord’ — to depreciate the US dollar.” Indeed, some traders expect it this year.
Most mainstream observers might consider this utterly mad — or, as Mark Sobel, a former top US Treasury official, says, a touch more diplomatically, “far-fetched and implausible”.
No wonder. Viewed through the prism of recent mainstream economic thinking, there are huge headwinds. First, joint currency interventions are at odds with free market ideas and in recent years as unfashionable as flares.
Second, history suggests that intervention works best with trusted allies. That was on display in the Plaza Accord. But French leaders are already indicating their resistance at doing Washington’s financial bidding. China could be far more truculent.
Third, tariffs usually strengthen currencies. Indeed Scott Bessent, Donald Trump’s Treasury secretary, told the Manhattan Institute last year that two-thirds of any impact from tariffs was typically seen in currency gains. That makes devaluation seem contradictory.
Fourth, if tariffs spark a stock market crash and/or recession — which seems quite likely — there might be a populist backlash. That could curb Trump’s wild ambitions, or so some hope.
However, I think it would be dangerous to assume that these headwinds will kill the Mar-a-Lago idea: Trump’s economic team have such a radically different philosophy from the mainstream policy world of recent years that they interpret those four issues differently.
How? Well, for one thing, they do not consider financial policy interventions to be retro, but essential if they are to force a grand reordering of global finance and trade. To understand this, consider a must-read essay from Stephen Miran, Trump’s pick for chair of the Council of Economic Advisers.
Nor are all of Trump’s advisers as terrified of stock market falls or recession as some critics hope, I am told. On the contrary, they have always known that tariffs will unleash some initial economic pain and want to get this out of the way early in Trump’s tenure. Indeed some officials actually see an upside. They think a recessionary shock will force other countries to the negotiating table faster and reduce US interest rates, while lower asset prices would counter the excessive financialisation that has blighted the US economy, particularly if a weaker dollar boosts industry.
“Trump’s team cares much more about the real economy in the medium-to-long term than the financial economy in the short term,” says Zoltan Pozsar, the founder and CEO of Ex Uno Plures, a research provider, who published a “Mar-a-Lago” report cited by Miran. “It’s about Main Street, not Wall Street.”
Third, while Miran’s essay warns that tariffs might initially strengthen the dollar, he thinks Washington can offset this. That is because the Mar-a-Lago concept is about more than “just” currencies. Instead, one idea floating around is that other nations will be “encouraged” to swap holdings of dollars, short-term Treasuries or even gold for long-term or perpetual dollar bonds suitable for repurchase deals at the Federal Reserve.
That would reduce fiscal pressure for the US, some think, while maintaining the dominance of the dollar financial system — and enabling Washington to weaken the currency. Or, as Bessent said last year, dollar devaluation and dominance are not “mutually exclusive” goals.
Fourth, even if Trump’s actions are alienating allies, his advisers hope to force compliance with any accord through tariff shocks and other threats. More specifically, Bessent says Trump will ask other governments to put themselves into “red”, “green” and “yellow” boxes — ie choose to be foes, friends or adjacent players.
“Green” countries will get military protection and tariff relief, but must embrace a currency accord. Some “yellow” — or even “red” — nations might cut transactional deals. There could be two stages with Mar-a-Lago, the thinking goes: one with allies and the second with others.
Will this actually happen? We don’t know. And, even if it does, many mainstream economists might argue that these plans are so wrong-headed they will fail.
Maybe so. But what investors must grasp right now is that Trump’s recent actions are not “just” capricious; his team’s vision has a potent internal logic. The current chaos is as much a feature as a bug.
Or, to put it another way, when Bessent declared last year that he wanted “to be part of . . . Bretton Woods realignments” for the global finance and trade system, he was not joking. Far from it. The ongoing tariff shocks may presage a bigger drama. Watch out for that Plaza anniversary.
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