Trump’s Secret Plan for the Dollar

There was a chance, small as it was, that Steven Miran was gonna be right.

So much for that…

Miran, I’ll suppose, is not a name you’re probably familiar with. And if you are, then you read too many economic treatises by unknown writers.

But no worries; I’m in that camp with you.

See… I recently read a 44-page thought experiment Miran published last November. Its title: “A User’s Guide to Restructuring the Global Trading System.”

Sounds, um, riveting? A real-page turner, I’ll bet. But why, El Jefe, do we care about an unknown writer musing about restructuring the global trading system?

Because Miran’s 44-page user’s guide was written for a single user: DJ Trump.

In yesterday’s dispatch, I mentioned that the US dollar’s reserve currency status is “hanging by a thread.” And I know from conversations I’ve had for eons that a lot of people scoff at that idea. The dollar is King o’ the World. Has been since a little meeting of 44 nations in Bretton Woods, New Hampshire back in 1944—a gathering that established the greenback as the Godzilla of Money.

Since then, the dollar has been the WD-40 of world trade—the lubricant everyone needs to move goods globally.

But therein lies the root of America’s problem today: When you’re the world’s reserve currency, every nation in the world needs your money to do business with every other nation in the world.

And ultimately, that’s bad money mojo.

See—if the world economy is growing faster than your economy, the world needs increasingly more dollars than you print just to facilitate all the increased trade. So, the world is cycling through your currency quickly as it trades Brazilian reals and Indonesian rupiah and Kenyan shillings for dollars in order to grease the wheels of global commerce.

The demand for converting local currencies into the dollar forces the value of the dollar higher, or at the very least to remain elevated.

Moreover, because yours is the reserve currency, countries’ central banks hold your currency in reserve to facilitate all the trade those countries do with the world. That, too, keeps the dollar unnaturally elevated vs. other world currencies.

To some, this means America’s dollar is strong, and strength must be good.

And to be fair, there are some benefits to a strong currency, the primary one being the fact that dollar strength has allowed Middle America to afford its aspirational life of buying this, that, and everything else on sale—imported from all over the world, at unnaturally cheap prices—at Walmart, Target, Dollar General, Best Buy, et al.

A strong currency also tends to lead to lower interest rates. So, the dollar’s strength has kept mortgage rates in America—and every other form of credit—super cheap. (But that has also fueled America’s addiction to cheap debt, as well as the rise in home prices that has pushed housing way past affordability for much of the country.)

What cost do Americans pay for cheap clothes and cheap debt?

The destruction of blue-collar jobs and the hollowing out of the middle class.

What the strong dollar giveth in cheap prices, it taketh away in the form of manufacturing jobs.

Yes—the strong dollar is the biggest reason America lost its manufacturing base.

While a strong dollar allows Sam from Saginaw to pay just a few hundred smackeroos for a 75-inch Samsung flat-screen, it also means that the machinery-equipment plant where Sam once worked relocated to Mexico because the parts Sam fabricated were simply too expensive in dollar terms to compete against equally good—or good enough—foreign-made parts.

Which brings us back to Stephen Miran…

Steve is currently the chair of the Council of Economic Advisors and formerly a partner at Hudson Bay Capital, an investment-management firm. His user’s guide rightly notes the history of why American manufacturing declined. And he rightly notes that this isn’t a recent phenomenon.

This dates to the late ’70s and early ’80s, when the Federal Reserve pushed interest rates up to 20% to fight inflation. High rates attract foreign money into a country as global investors sell their low-yield currency to buy the high-yield currency (the dollar).

Easy money to be made in that.

Thus began the trend of sending US manufacturing jobs overseas as American companies sought more affordable places to build their widgets and gadgets. In fact, Reagan’s 1985 Plaza Accord with the UK, Japan, France, and West Germany was explicitly meant to devalue the egregiously overpriced dollar in hopes of making American products affordable once again.

At that point, however, the spilled milk was spoiled and there was no saving it.

But back to Miran…

I am not going to subject you to my analysis of 44 pages of this and that. Instead, I want to tell you that his user’s guide is essentially a recipe book aimed at a single end-result: The end of the dollar as a strong currency.

Where Miran likely gets it wrong is his assertion that Trump and the US can effectively thread a needle to accomplish two ends that work in opposition: permanently devaluing the dollar, yet maintaining the dollar’s reserve currency status.

The means to that end, Miran lays out, is the US threatening to kick out of its security net any country that trades in another currency other than the dollar.

Funny thing about the world today—leaders of Big Boy Countries no longer take kindly to schoolyard bully-style threats.

“Gimme your lunch money, twerp, or I let the girls beat you up again!”

Miran’s thinking is stuck in the past, in that he assumes the carrot and stick approach that might have worked a decade or two back will work today. Alas, the reality taking shape as I write these words is hardboiled proof that the world is simply moving away from the US and away from the dollar.

The European Union and China are now working on doing away with tariffs on Chinese cars in the EU and replacing them with “minimum pricing requirements.” The EU and India are suddenly rushing to finalize a free-trade deal.

China is working more closely now with Vietnam and Cambodia… and in what is perhaps one of the more unique examples of strange bedfellows: China, Japan, and South Korea are coming together to work on a trade deal. These are countries with centuries of deep-seated hatred for each other—the Hatfields and McCoys times three—and yet here they are standing together in a tripartite trade union.

Trump’s tariffs have managed to create friendships out of mortal enemies.

And that gets us to a very big dot to connect: Why would China and Europe trade with the dollar as the middleman currency? The European Union is the #1 consumer population in the world, 2x larger than America; China is #3. Both sides are happy to own the other’s currency since they’ll be trading back and forth more frequently.

Same with South Korea, Japan, and China… and the EU and India.

None of those countries have any real reason to use the dollar in trade, or to care about holding dollars as more than a token currency reserve, certainly much less than they hold now.

Germany and the EU are now saying, “To hell with America’s security shield. We can build our own!” So the threat of being outside of America’s security net increasingly means bupkus to many countries.

Which means…

The dollar’s days as King Currency are numbered.

Miran and others in the Trump orbit will disagree with that, but that’s because they’re looking back at what America used to be and not forward at how the world now views an unreliable and wishy-washy ally that has turned into the kind of bully people just roll their eyes at.

So what we get to here at the end of today’s dispatch is an increasingly desperate need to protect yourself from what’s to come.

And next week, I’ll be laying out details of a special Summit I’m organizing, devoted to exactly that purpose…

Stephen Miran made it to the right destination by taking all the wrong turns: America’s biggest problem is its proudest weapon—the US dollar.

The US can no longer maintain a reserve currency. Period.

The world has moved on from its need for a dollar reserve. And America has reached a point where its only viable path to rebuilding its manufacturing base is devaluing the dollar to, hopefully, make US products more competitive globally.

All of which means that your life is going to get more expensive as the dollar declines in value going forward.

That’s not me saying that. That’s the people in Trump’s orbit, like Stephen Miran, who are pushing for a much weaker dollar.

And they’re likely to get it.

So, start preparing now.

Because when the devaluation comes, the move will happen fast.

Stay tuned for full details of my special Summit.