DOLLAR DESTRUCTION DERBY / MACLEOD FINANCE

Dollar destruction derby

Trump and his presumed Mar-a-Largo Accord plan to cut interest rates and lower the dollar. Markets are asleep to the inflationary threat to dollars, bonds, and equities. 

ALASDAIR MACLEOD

The widely recognised author of the so-called Mar-a-Largo Accord, Stephen Miran, is being nominated by President Trump to serve on the Fed’s board. 

Trump has also moved to sack Lisa Cook, a serving governor appointed by Biden. 

Separately, he sacked Erika McEntarfer, the Bureau of Labor Statistics (BLS) commissioner last Friday, accusing her agency of faking the latest employment figures for political purposes.

Clearly, Trump is surrounding himself with like-minded executives more aggressively than past presidents, even in defiance of the law and Constitution. 

Officials better be on message, or they will be sacked. 

Fear rules in government agences.

While we can sympathise with a president getting rid of obstructive personnel, policy is increasingly being determined by groupthink. 

Stephen Mirran, whose appointment to the Fed is yet to be ratified is the author of a paper for Hudson Bay Capital upon which the intended Mar-a-Largo accord is said to be based. 

The intention is to undermine monetary policy and weaken the dollar, already telegraphed by Trump. 

And it might not turn out to be a wild conspiracy theory to see Miran being proposed by Trump as Jay Powell’s replacement as Fed chairman next year, if he manages to get him appointed.

However, assuming Miran’s paper for Hudson Bay Capital is the basis of a so far undisclosed Mar-a-Largo accord, holders of dollars should take note. 

It is full of macroeconomic errors and assumptions. 

It has been called an Accord on the assumption that it will be the equivalent of the 1985 Plaza Accord, an agreement between the US, UK, Japan, France, and Germany to weaken the dollar in order to reduce the US trade deficit.

Apart from some dubious suppositions as to why Plaza was a success, Miran assumes that the other issuers of the major currencies —sterling, the euro, the yen, and perhaps the yuan can be bullied into cooperating to drive their currencies up against the dollar. 

With the exception of China it is certainly possible, the other three being spineless partners.

Let’s just pause for a moment and think through the consequences. 

The prices of US imported goods and commodities will increase because of yet-to-be-defined but punitive tariffs, added to which the dollar’s devaluation will ensure that CPI inflation dominates the economic outlook.

And the Fed being bullied into not raising rates can only mean one thing: the dollar will not stop falling and it will lose purchasing power at an accelerating rate.

There’s not much point in criticising Miran’s paper in any detail, because we cannot be certain how much of it will be adopted. 

Events appear to be overtaking it anyway. 

The dollar appears to be doomed, with the headline chart to this article showing that technically its trade-weighted index is already looking terrible. 

And it is hardly surprising that with all this uncertainty, US Treasury bond yields are rising along the yield curve.

Investment strategists, the mainstream media, and traders are just beginning to recognise that it is only a matter of time before the long bond yield rises above 5%, followed by further potentially rapid increases. 

The background of a sinking economy, only appearing to not be by a soaring budget deficit while bedevilled by rising inflation confirms that US bond yields are heading much higher as the debt trap on the US government slams shut.

Trump’s dictatorial style with its fatal errors comes at a time of increasing fragility in other bond markets, some of whose 30-year maturity yields are already soaring into new high ground as I described in my Substack article of 23 August. 

The UK faces its own acute problems with a government powerless to take remedial action. 

And France with its spending out of control faces a non-confidence vote, likely to topple its government. 

Other bond market yields, notably Japan’s and Germany’s are already leading global yields higher.

The equity bubble bursting is surely getting very close now. 

The sheer stupidity of Trump’s economic policies is bringing the cliff-edge of a widespread credit collapse forward from months away to a matter of only weeks.

I repeat my earlier messages. It is time to stop accumulating wealth and to project what you have got. 

You do that by getting out of credit, whose value is on the verge of an accelerating collapse. 

To get out of credit, which includes all fiat currencies, you must sell them while you can for real money which in everyone’s common law is physical gold without counterparty risk.