Buttonwood

Why everybody is concerned about corporate-bond liquidity

Investors expect to find sellers at all times, but dealers lack capacity to buy







IN SEPTEMBER 2007 Britain suffered its first bank run in a century. Television pictures showed a long queue of depositors outside a branch of Northern Rock. Alistair Darling watched in dismay from Portugal, where he and his fellow European Union finance ministers were gathered. “They’re behaving perfectly rationally, you know,” Mervyn King, the governor of the Bank of England, said in the smarty-pants manner that economists are cherished for. Mr Darling was uncharmed. “It was not what I wanted to hear,” he recalled.

What Lord King probably had in mind was a well-thumbed textbook model. Banks have a liquidity mismatch. One side of the balance-sheet is hard-to-sell loans; the other side is deposits that can be withdrawn in a trice. If depositors believe that a bank is sound, there will be no runs on it. But if enough start to demand their deposits back, it makes sense for everybody to join the rush.

This model can also be applied in other areas. Take the corporate-bond market. Every policy body of stature, from the IMF to the European Central Bank (ECB), has worried about a growing mismatch between investors’ expectations that they can sell out at any moment and an underlying shortage of liquidity in the market. More investors are using corporate-bond funds as an alternative to cash. But fewer dealers are willing to trade bonds in size. A big scare could feasibly start a run.

The dynamics of capital-market runs are similar to those of bank runs. You see them in currency crises. Foreign-exchange reserves, say, are slim relative to the scale of local-currency assets held by flighty investors. Should enough of those investors sell out, others will soon follow. The result is a rout. There is a similar pattern with investment funds that promise speedy withdrawals but hold assets that cannot be sold quickly. Bad news prompts withdrawals. The speedy get paid. Other investors then try to get out, too. But the fund cannot sell assets fast enough. It is forced to suspend redemptions.

Such trouble is especially likely with corporate bonds, which are inherently illiquid. In contrast with trading in shares, where buy and sell orders are matched on electronic order books, corporate bonds are traded over-the-counter. Bonds are not as standardised as shares. A company may have bonds of several different maturities. If you want to buy or sell, you call a dealer.

The ease with which investors can trade bonds—the market’s liquidity—depends a lot, then, on the readiness of dealer banks to stockpile securities. Where there is heavy selling, dealers would ideally warehouse cheaper bonds for when people want to buy again. But since the financial crisis new rules have made it less cost-effective for banks to use capital for trading of any kind. The inventory of corporate bonds held by dealers has fallen sharply in the past decade (see chart).




As the role of dealers has shrunk, the thirst for instant liquidity has increased. Derisory yields on the safest government debt have drawn investors towards riskier securities, including corporate bonds. A cheap and convenient way to invest in them is to buy an exchange-traded fund, or ETF. These are low-cost investment funds that hold a basket of bonds, usually mirroring a benchmark index. They trade on stock exchanges just as listed shares do. The ease of buying and selling bond ETFs is a big part of their appeal. They are also often used as depositories for spare cash. Studies are divided on whether ETFs make the underlying bonds more or less liquid. But there are concerns that in a stressed market, outflows from ETFs might make a bad situation worse.

And it is not hard to make a case that the corporate-bond market has become more fragile.

Many firms in America have issued lots of bonds to buy back their own shares. With extra leverage comes more risk. Half of all investment-grade bonds have a credit rating of BBB. In a recession a chunk of those bonds will be downgraded to junk. Many mutual funds and ETFs can hold only investment-grade bonds. If a lot of bonds have to change hands quickly, that could easily overwhelm the market’s limited liquidity. Prices might fall a long way.

Just how messy the next big shake-out in the corporate-bond market is depends on many things: on how weak the economy gets; on how many BBB borrowers can avert a downgrade; on how quickly funds can be raised to buy at fire-sale prices. For now, it seems rational to hold bonds that afford a little extra yield. Smart-alecks say this will surely end badly. But who wants to hear that?

Bretton Woods at 75: the threats to global co-operation

The system of economic governance established at the 1944 conference is being undermined by rising protectionism and nationalism

Martin Wolf


© FT montage; Time & Life Pictures/Getty Images. Henry Morgenthau Jr and Donald Trump



“We have come to recognise that the wisest and most effective way to protect our national interests is through international co-operation — that is to say, through united effort for the attainment of common goals.”

- US Treasury secretary Henry Morgenthau Jr, closing address at Bretton Woods Conference, July 22, 1944


“We must protect our borders from the ravages of other countries making our products, stealing our companies and destroying our jobs. Protection will lead to great prosperity and strength.”

- Donald Trump, inaugural presidential address, January 20 2017


The conference at Bretton Woods in New Hampshire that underpinned much of today’s global economic order took place three-quarters of a century ago, between 1 and 22 July 1944. The second world war was not yet won. Yet already the western powers — the US, above all — were thinking about how to organise things differently for the better world that had to lie ahead.


The opening day of the Bretton Woods conference in 1944


The world has changed enormously since then. Today, the spirit that animated the conference is embattled. Yet it remains as relevant as it was in 1944. This anniversary is more than an arbitrary moment: it is an occasion for reflection, on what has gone right, what has gone wrong and what needs to happen if the spirit of Bretton Woods is to shape the world in the decades ahead or fail, as the League of Nations did between the two world wars.

An impressive collection of 50 essays — Revitalising the Spirit of Bretton Woods organised by the Washington-based Bretton Woods Committee — explores the formidable challenges ahead. As Gail Kelly, former chief executive of Westpac, says: “In 2019, Bretton Woods reaches its 75th anniversary . . . [T]here is indeed a lot to celebrate. But growing and strident nationalism, coupled with ardent protectionism, are making the challenge much harder.”

Paul Volcker, former chairman of the US Federal Reserve, encapsulates the spirit of Bretton Woods: “The belief in a common interest in international co-operation, the importance of certain basic rules of good behaviour with respect to exchange rates, and the need for development among the multitude of ‘emerging’ nations.” With the General Agreement on Tariffs and Trade, which went into effect as a provisional agreement in 1948, this idea of “certain basic rules of good behaviour” also covered trade.


Chart that global GDP growth has been much less volatile since the Bretton Woods conference of 1944


In economic policy, Bretton Woods means a commitment to co-operation, contractual obligations among nations and effective international institutions — the International Monetary Fund, the World Bank group and the World Trade Organization.

Today, there is far more to institutionalised economic co-operation than these three institutions. The regional development banks, created on the model of the World Bank, and, more recently, the Asian Infrastructure Investment Bank and the New Development Bank, sponsored by China, also play an important role.

Two informal groups of countries have also been influential: the G7 which includes the seven largest high-income economies; and since 2008 the G20, which includes the leading emerging economies and the EU.

Chart showing the huge global drop in poverty levels since the 19th century


If we judge the era that followed Bretton Woods by economic performance, we have to conclude it has been a triumph. In their chapter, Nicholas Stern of the London School of Economics and Amar Bhattacharya of the Brookings Institution note that “overall, world income per capita has grown by a factor of four since 1950 as population has roughly trebled”. Between 1950 and 2017 the volume of world trade increased 39 times.

The share of the world’s population living on less than $2 a day (at 2011 purchasing power parity levels) declined from about 75 per cent in 1950 to 10 per cent in 2015. Global inequality has also fallen significantly during the past few decades, largely because of the rapid rise of the large Asian emerging economies, especially China and India. Moreover, the world economy was also far more stable than it had been in the first half of the 20th century.

These advances did not occur because everything went smoothly. The regime of fixed, but adjustable, exchange rates collapsed in 1971, when the Nixon administration broke the dollar’s link to gold. Inflation then exploded upwards in the 1970s, to be tamed, at substantial cost, in the 1980s. Financial liberalisation delivered waves of banking and debt shocks, which culminated in the global and eurozone crises of 2007-13.

Chart showing how income has grown faster in Asia than anywhere else since 1950


Bouts of protectionism erupted, not least in the early 1980s in the US, in response to the strong dollar and the success of Japan. A trading system founded on the principle of non-discrimination also morphed into one with a host of preferential (that is, discriminatory) trading agreements.

Overall, the Bretton Woods ideal of structured co-operation worked extraordinarily well. But new challenges have emerged. Perhaps the most important is the shift away from western and, above all, US dominance, with the rise to superpower status of China. On some measures, China already has the biggest economy in the world.

Also significant has been the rise of nationalism and protectionism and the consequent threat of fragmentation not just globally, but also within the west. Mr Trump’s idea of “America First” and his passionate belief in protectionism are a fundamental repudiation of the animating spirit and institutional structure of the order the US created after the second world war.

The emergence of this very different spirit is, in turn, a consequence of economic changes that have undermined trust both in the idea of an open world economy and in the people and institutions that manage it. Important causal factors in high-income countries have been deindustrialisation, rising inequality, the slowdown in productivity growth and the shock of the unexpected financial crises. Today, unlike 40 years ago, it is the citizens of the high-income countries, not of the emerging world, who are most suspicious of global economic integration.

Chart showing how big currency fluctuations followed the era of fixed exchange rates


Deglobalisation has begun. Catherine Mann, former chief economist of the OECD, points to declines in the trade intensity of growth and the unravelling of global value chains since the financial crisis. This, she argues, may also be one reason for slowing productivity growth. Cross-border financial flows also peaked in 2007.

Another shift is growing pressures on the environment, especially climate change. The world, it is now argued, has moved from the Holocene to the Anthropocene: a planet largely shaped, both for good and ill, by human activity.

To this must be added technological change. More recently, these are undermining the comparative advantage of developing countries in labour-intensive manufacturing. They are threatening large-scale disruption to patterns of employment. They are creating new cross-border flows, notably of data. They are transforming payment systems and are likely to have even bigger effects on monetary systems.


A wildfire near Athens in July 2018. Global warming has become a pressing issue for multilateral organisations © AFP


So how is a co-operative global economic order to be sustained? This question can be addressed narrowly, in terms of institutional purpose and architecture, and more broadly, in terms of international relations.

The focus of the essays is on the former. It includes the management of monetary and financial systems, the future of development policy and the prospects for the WTO and world trade, which were all part of the debates at and around Bretton Woods. It includes newer areas for co-operation, such as corruption, climate change, fragile states, migration and technology.

One traditional issue is the reliance on the US dollar in the global monetary system. This was unresolved at Bretton Woods, when John Maynard Keynes proposed a global currency. In this volume, Jean-Claude Trichet, former president of the European Central Bank, argues that a supranational currency remains impossible. But a bigger role for SDR (special drawing rights — a reserve asset created within the IMF) is not. Managing the global monetary system as China’s renminbi becomes more important will be a further challenge.

Chart showing how inflation has been brought under control since the turbulent 1970s

Another well-known issue is financial stability. On this, Mark Carney, governor of the Bank of England and former chair of the Financial Stability Board, is boldly optimistic: “The radical programme of G20 reforms has made the global financial system safer, simpler and fairer.” Whether it has made it sufficiently safer will only be known in time.

A depressingly familiar issue is the future of the trading system. Global liberalisation has halted. The US has not only moved in a decisively protectionist direction, but has contravened the letter and spirit of the WTO. It has also sought to neuter the dispute settlement system of the WTO by rendering it inquorate.

On development, Sri Mulyani Indrawati, Indonesian finance minister and former chief operating officer at the World Bank, emphasises the need for vast investment if today’s ambitious “sustainable development goals” are to be met. Direct funding by multilateral development banks, including the new Chinese-led ones, will be totally inadequate. Funding will have to come largely from the private sector.




David Miliband, head of the International Rescue Committee and former UK foreign secretary, stresses that “more than 40 per cent of the extremely poor now live in conflict-affected or fragile states”. This is also the origin of much of the global migration pressure. Thus, if extreme poverty and the flood of refugees are to be eliminated, such conflicts need to be addressed. So, too, he argues, does the pressure on the relatively poor countries that are now host to 84 per cent of the world’s refugees.

Climate change is making such problems worse. Yet selfish high-income countries, notably the US, have apparently decided not to tackle this challenge. Sanctions on such behaviour may have to be considered.

Another important challenge is corruption, discussed by Frank Vogl, co-founder of Transparency International, and William Rhodes, former senior adviser at Citigroup. They write that “IMF officials privately concede that they need to do more by explicitly raising issues of illicit finance with the governments of major western developed economies, whose capital markets provide safe investment havens for so much of the illicit cash.” Yes, that includes, above all, American and British capital markets.

Chart showing how world trade reached record levels before the financial crisis

These perfectly proper questions about how institutions are to be reformed and new challenges to be tackled, including the need to reflect changes in global power in institutional governance, are, to a degree, secondary. The bigger question is whether the necessary level of co-operation is to be sustained at all.

Today’s economic challenges are met by a resurgent nationalism. Yet countries are not islands.

If anything, global co-operation is more important today than 75 years ago. But it has also become more difficult.

The “realist” school will tell us that co-operation is a pipe dream: international relations are always about the brutal politics of power. But is a system “realistic” if it leads to disastrous results for everybody? Only if conflict is the only imaginable system. Now that the world does not have a dominant superpower, the old hierarchical US-led system is no longer feasible. But some sort of co-operative system is still essential.

Keyu Jin of the London School of Economics, one of only two Chinese contributors, lays out a novel way of thinking about this challenge. She argues that economic networks may supersede relations among nations and render traditional notions of hegemony redundant. China, she suggests, may end up not as another hegemon but as a “global network leader”.


Chart showing how the US is on its way to becoming a highly protectionist country


The big point Prof Jin makes is a central one: how do we create enough order and co-operation to sustain our complex, interdependent and environmentally stressed world, without a hegemon most countries want to follow? It can only be through networks of networks, set within global commitments.

Bretton Woods shaped the post-second world war era not so much because of the specific agreements reached, but because of the commitment to institutionalised co-operation it embodied. This commitment has remained vital, through the twists and turns of the subsequent 75 years. And remains as important as ever.

Institutions must indeed develop. New challenges must be met. Yet if the world is unable to sustain and develop the underlying commitment to co-operation, global progress may not be sustained and the challenges we confront may not be met.

Morgenthau was correct. Mr Trump is wrong. It is as simple — and as difficult — as that.

Could the Democrats Blow It?

A major dilemma of the Democratic nomination contest is that it is a test of two important attributes: which candidate can beat Trump, and which is offering the most appealing platform to primary voters. These are not the same thing.

Elizabeth Drew

drew42_DrewAngererGettyImages_harrisbidendemocraticdebate

WASHINGTON, DC – The unprecedentedly large number of candidates – 25 at last count – for the Democratic nomination to take on US President Donald Trump in 2020 has led to an awkward opening to the contest. The number of contenders will drop as the qualifications for participating in party debates tighten (especially in September) and some run out of money. Some know they have no real chance at winning, but hope that becoming better known might land them a cabinet post, more lucrative book deals, or larger speaking fees.

Most experienced political observers have assumed that the Democrats can defeat Trump unless they swing too far to the left, turning off those who had supported Barack Obama and then Trump, including the blue-collar workers and suburbanites who decided the 2016 election. There were various moments in both debates when one could envision Trump smiling. And now many Democrats are depressed.

The problem for the Democrats, especially in this election cycle, is that voters in primary contests (in both parties) tend to be more extreme than the parties as a whole. The Democrats’ recent swing to the left began with the 2016 challenge by Bernie Sanders – who calls himself a “democratic socialist” and isn’t a Democratic Party member – to Hillary Clinton’s presumed nomination. Sanders, with his appeal as an insurgent and his unrealistic promises (as well as Clinton’s weaknesses) nearly undid her nomination. Young people in particular found him an exciting anti-establishment figure.

Senator Elizabeth Warren was rising in the polls even before the debates. But her vast policy agenda represents a leap forward in government intervention in the economy and other domestic arrangements; adds up to trillions of dollars, without a clear explanation of how to pay for it; and is unlikely to be approved by Congress (even if the Democrats recapture control of the Senate). None of this has caught up with her, but as she becomes one of the top two or three candidates (drawing some support from Sanders), these vulnerabilities are likely to be exposed.

Kamala Harris, born of professional parents from Jamaica and India, is more cautious than Warren and in some cases her positions – for example, on whether private health insurance should be abolished – have been contradictory. She built her reputation on having been a prosecutor and attorney general in California, and has won national attention by using her prosecutorial skill in hearings, though not always fairly. As a California prosecutor she was partly progressive, but also demanded harsh sentences and reportedly kept some innocent people locked up.

In the second of the first pair of Democratic debates, Harris stole the show by attacking former vice president Joe Biden, at that point the frontrunner. Dredging up a controversy from the 1970s, Harris pointed out that the former senator from Delaware had opposed federally mandated busing in order to achieve greater racial integration of schools. A Gallup poll in the early 1970s found that only 4% of whites and 9% of African-Americans supported the highly controversial program.

Harris, who pointed out that as a child she participated in a busing program (albeit a voluntary one in Berkeley, California), combined that attack with a declaration of personal hurt from Biden’s recent unartful nostalgic recollection of working with two arch-segregationists in the Senate to get some bills passed decades ago. (Both occupied powerful Senate positions and pro-civil rights Democrats working with them wasn’t uncommon, though Biden could have chosen less noxious examples to make his point.)

Harris sought to cut into Biden’s strong African-American support, which has been aided by his eight years as vice president to Barack Obama. Biden was unprepared for the attack and stumbled in his reply. He emphasized his strong pro-civil rights record, and a couple of weeks later he apologized for appearing to condone the two segregationist senators. And it turned out that Harris’s current position on busing isn’t much different from Biden’s. But her attack was enough to catapult her nearly to the top of the polls. The press attention afterward to Harris’s long-planned attack on Biden – confrontations and zingers (though obviously rehearsed) make for good TV – is an example of what’s wrong with these “debates” as a vehicle for choosing a candidate.

Sanders’s considerable recent decline in opinion polls– coming in behind Harris and Warren in some polls, as well as behind Biden – can be attributed to the fact that his act is no longer fresh. He’s still long on promises and short on details, and he’s still grumpy and a yeller. But, mainly, Sanders is no longer the lone insurgent challenging the quintessentially establishment figure.

Biden, however, has the greatest problems. Before the first debates, he hovered some 20 points above his rivals. Though this may have been due largely to his greater name recognition and his evident closeness with Obama (who is remaining studiously neutral), he has come across as dwelling in nostalgia. He seems not to recognize how much US politics has changed in terms of hyper-partisanship since he was in the Senate, before the Republican Party turned to the right and became openly obstructionist.

Moreover, Biden was never a great campaigner for the presidency, failing twice. He’ll be 77 in November (three years older than Trump) and would turn 80 in his first term – making him the oldest US president ever.

Two or three others remain plausible Democratic candidates. Right now, some of the charm might be wearing off Pete Buttigieg, the preternaturally wise 37-year-old mayor of South Bend, Indiana, a gay man who volunteered to serve in Afghanistan.

“Mayor Pete” had an excellent spring, and he remains a darling of many Democratic donors. But just before the debate, he had to confront an issue vexing officials in towns and cities across the country: a white policeman in South Bend had recently shot and killed an unarmed black man. In the debate, the issue seemed to weigh him down. And he’s in trouble if he can’t attract African-American support, a problem he’s had ever since, as a new mayor, he fired South Bend’s first black police chief.

By the conclusion of the first pair of debates, many of the Democratic candidates had backed controversial leftist proposals such as Medicare for All, which could spell the end of private health insurance and raise taxes; decriminalizing undocumented immigration; covering undocumented immigrants in government health-care plans; and school busing.

A major dilemma of the Democratic nomination contest is that it is a test of two important attributes: which candidate can beat Trump, and which is offering the most appealing platform to primary voters. These are not the same thing.


Elizabeth Drew is a Washington-based journalist and the author, most recently, of Washington Journal: Reporting Watergate and Richard Nixon's Downfall.

China’s economy faces currency devaluation drag

Political choices about value of renminbi tempered by consequences for growth

Delphine Strauss in London


China let the renminbi weaken to under Rmb7 to the dollar on Monday, shaking markets around the world © EPA


Beijing’s decision to let the renminbi fall below the symbolic level of 7 to the dollar was a political choice — but it would not be in China’s economic interests to “weaponise” its currency, economists say.

Monday’s move to increase the renminbi’s trading band came as a retaliation against the latest US threat of fresh tariffs. And although China’s central bank took steps to stabilise the currency on Tuesday, investors worry that the authorities could seek to put pressure on Washington by allowing a bigger devaluation.

While political calculations might dictate that decision, concerns over the impact on China’s economy could act as a restraint, according to economists.

“I don’t see any upside for China,” said George Magnus, an associate at Oxford university’s China Centre.

A depreciation would boost trade at the margin, he said, but stability in the currency was far more important to Chinese policymakers, whose main concerns are to contain capital flight, avoid a domestic debt crisis and pursue a rebalancing of the economy from exports to consumption.

Using the exchange rate as a tool “is a double-edged sword, potentially hurting both the US and China”, said Alan Ruskin, a strategist at Deutsche Bank.

Has China been manipulating its currency?

No. The renminbi lost about 10 per cent of its value against the dollar last year, as the first rounds of US tariffs took effect. But given the scale of the penalties the US has imposed, a bigger adjustment could have been expected.

The IMF said last month that the exchange rate was in line with economic fundamentals and economists dismissed the idea that China had intervened to drive the currency below its fair value, saying that if anything, Beijing had recently been keeping the renminbi artificially high.

Would a much weaker renminbi boost the economy?

It would help Chinese exporters compete overseas, and it might prop up growth to an extent.

Bo Zhuang, at the consultancy TS Lombard, said a worsening economic outlook had made the Chinese leadership more open to a market-driven depreciation; and Jian Chang, an economist at Barclays, said policymakers might consider it as an alternative to cutting interest rates as a tool to stabilise growth.

Mr Magnus said a much larger, sustained devaluation — in the order of a 20 per cent fall against the dollar since the outset of the trade war — would “bestow some competitive advantage”, although it could also spark tit-for-tat action in the region.

But a weaker exchange rate does not make as much difference to trade patterns as it did in the past.

Global supply chains mean exporters’ gains are offset by the higher price they pay for imported components. The widespread use of the dollar in global trade invoicing may also limit the gains, at least initially.

The IMF argued in its latest external sector report that when a country’s currency weakened, there would often be a rapid hit to imports, but only a tepid boost to exports at first — because other trading partners also saw their currencies fall against the dollar.

“Exchange rate changes have muted effects on the trade balance in the short-term,” the IMF concluded.

“Currency movements may not be passed through to final prices and may well be more than offset by higher tariffs . . . at least for exports to the United States,” said Stephanie Segal at the Center for Strategic and International Studies.

Economists at Morgan Stanley said that if Chinese policymakers wanted to do more to support growth the most likely response would be a fiscal stimulus, focused on infrastructure projects.

What are the downsides for China?

One risk of a renminbi devaluation is that it could trigger defaults on domestic dollar-denominated debt, especially in the property sector.

Analysts at the consultancy Pantheon Macroeconomics noted that while these debts were not a high proportion of total Chinese debt, they were “non-negligible and will put the screws on developers”. However the government has already taken action to rein in excesses in the real estate sector, where bankruptcies have risen recently.

A bigger concern is capital flight. When the renminbi last came under sustained pressure in 2016 net capital outflows over the year reached $725bn, and although China held foreign exchange reserves of more than $3tn, it depleted them at an alarming rate to stem the tide.

“The danger now, for China, the United States, and the rest of the world, is that market forces overwhelm the official sector’s ability to respond,” Ms Segal said.

However, Bo Zhuang argued, outflows would be more manageable now, because of China’s tighter capital controls, less “panicky” households and companies, and a lower level of speculative pressure from markets.

The main problem is that a weaker renminbi would hurt Chinese consumers — who would pay higher prices for imported goods — more than it could help exporters.

The UK’s experience since the EU referendum in 2016 helps to illustrate this: the resulting fall in the pound drove up inflation, leading to a two-year squeeze on living standards, but made very little difference to the volume of exports.

The recent thrust of Chinese policy had been to move away from export-led growth and orient the economy towards consumption, Mr Magnus noted, adding: “If you make imports more expensive, you’re frustrating that process.”

Strange Bedfellows Indeed: Trump And AOC Converge On Monetary Policy


President Trump and Congresswoman Alexandria Ocasio-Cortez don’t agree on much – and would be loath to admit it if they did. But their ideas on monetary policy are converging on the same goal: easy money forever.

Trump is now trying to force the deep state to devalue the dollar:

Trump has reportedly asked aides to find a way to weaken the US dollar 
(CNBC) – The U.S. president has reportedly asked aides to find a way to weaken the dollar in an effort to boost the economy ahead of the 2020 election. 
The strength of the greenback has proven a headache for Trump, who’s made reducing the U.S. trade deficit a priority. 
Last week, the president said in a tweet that the U.S. should match China and Europe’s “currency manipulation game.” 
“China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA,” Trump said on Twitter. “We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games – as they have for many years!” 
The president also asked about the greenback while interviewing Federal Reserve Board nominees Judy Shelton and Christopher Waller, people familiar with the matter told Bloomberg News. 
A strong dollar tends to give American consumers an advantage when purchasing foreign goods but can hurt domestic exporters as other nations are forced to shell out larger sums for goods produced in the U.S. That’s proven a headache for Trump, who’s made reducing the U.S. trade deficit a priority. 
His questioning of Shelton and Waller come after months of White House attacks on the Fed and its hesitation to cut borrowing costs, a move that would reduce the value of the dollar as investors look for higher interest rates elsewhere.

AOC, meanwhile is doing basically the same thing:

AOC Is Making Monetary Policy Cool (and Political) Again 
(New York Magazine) – There’s a strong case that the most important economic policy decisions of the past decade have been at the Federal Reserve. In the wake of the 2008 financial crisis, America’s central bank decided which troubled financial institutions would live and which would die, created a public option for short-term corporate financing, manipulated asset prices by creating artificial demand for various securities, provided an unlimited supply of dollars to some cash-strapped European nations (but not to others), and began deliberately suppressing economic growth in 2015, on the grounds that the U.S. could not sustain an official unemployment rate of below 5 percent without triggering runaway inflation. 
All these decisions had profound consequences for the global economy; and that last one might very well have cost the Democratic Party the last presidential election by slowing economic growth in 2016. 
And yet, the Fed’s policies attracted scant attention from the mainstream media or elected Democrats. An unthinking reverence for the central bank’s political independence kept the American public ignorant of — and unelected bureaucrats, unaccountable for — exercises of discretion that helped determine the availability of jobs, cost of credit, and distribution of wealth in the United States. Conservative Republicans may have been willing to threaten Fed governors with violence if they didn’t start fighting non-existent inflation — but liberal Democrats barely made a peep as Janet Yellen’s rate hikes needlessly jeopardized the job prospects of low-income workers (and Hillary Clinton). 

Fortunately, the 2018 midterms brought some new Democrats to town. And the new generation is woke on monetary policy. 
In recent Congressional hearings with Fed chair Gerome Powell, Alexandria Ocasio-Cortez noted that over the past five years, the central bank had repeatedly suggested that unemployment could not fall much lower without triggering high inflation — only to see unemployment fall much lower without triggering high inflation. 
Ocasio-Cortez: In early 2014, the Federal Reserve believed that the long run unemployment rate was around 5.4 percent. In early 2018, it as estimated that this was now lower, around 4.5 percent. Now, the estimate is around 4.2 percent. What is the current unemployment rate today? 
Powell: 3.7 percent. 
Ocasio: 3.7 percent…Unemployment has fallen about three full points since 2014 but inflation is no higher today than it was five years ago. Given these facts, do you think it’s possible that the Fed’s estimates of the lowest sustainable unemployment rate may have been too high? 
Powell: Absolutely. 
This exchange may sound dull and technical. But the congresswoman’s point has real human stakes. America’s central bank has a dual mandate: to promote full employment and price stability. How the Fed chooses to balance those two objectives has redistributive implications. The wealthy have far more to lose from inflation than they do from modest levels of unemployment. In fact, many business owners may actually prefer for the U.S. economy not to achieve full employment, since workers tend to be less demanding when jobs are scarce. By contrast, the most vulnerable workers in the U.S. — such as those with criminal records or little experience — will struggle to get a foothold in the labor market unless policymakers err on the side of letting unemployment fall “too low.” 
AOC was effectively pressuring Powell to pursue an accommodative monetary policy that would improve Donald Trump’s chances of reelection (or so, Trump himself seems to think).

It would be epically ironic if Congress’ most outspoken socialist turned out to be instrumental in re-electing Trump by making easy money acceptable just in time for 2020.

But – as strange as this new alignment of the political stars looks at first glance – it’s also inevitable.

Once a society takes on more debt than it can ever hope to pay off, the only way to avoid another Great Depression is to inflate away the currency. So it should come as no surprise that both ends of the ideological spectrum are rationalizing lower (and soon negative) interest rates and next-gen QE.

And it won’t be a surprise when these policies create exactly the kind of chaos that always results when governments try this kind of thing.

Now for the obligatory gold plug: Each and every time something similar has happened in the past, gold and silver preserved purchasing power – which is to say they soared in local currency terms. This time will be no different.