The takeaway: As Trump seeks to weaken the US currency, he calls out Japan and China for doing likewise.
Joseph Adinolfi yesterday wrote for MarketWatch that supporters of President Trump as well as members of the administration would like the President to consider policy that would weaken the US dollar while maintaining the dollar’s status as the world’s reserve currency. Referring to the proposed policy as the Mar-a-Lago Accord, the aim of the policy would be to reduce the debt of the United States while invigorating the nation’s manufacturing sector.
According to the article, Mr. Trump would have to get buy-in from America’s trading partners i.e., Europe, Mexico, Canada, and China. The plan would call for U.S. creditors to swap the US Treasurys they hold at their respective central banks for a non-tradeable “century bond.” The goal is to reduce the value of the dollar, thus its borrowing costs, and encourage a reallocation of capital to the United States.
To me, it sounds like the United States wants to become a quasi-carry trade for the rest of the world, but instead of borrowing US dollars and locking them up into another country’s securities, the dollars would stay in the US in some form of investment.
A Mar-a-Lago Accord may be a bit of the pot calling the kettle black. Writing today for Investing.com, Leika Kihara and Makiko Yamazaki shared that Mr. Trump was on a call with the leaders of China and Japan asking them not to weaken the yuan and yen, respectively. Mr. Trump stated that such intervention would be “unfair” to the United States making it difficult to manufacture product.
My desire for the dollar is that it continues to draw demand for a high-performing underlying economy. The dollar relies too heavily on America’s credit infrastructure. The dollar is a derivative of a derivative; a receipt evidencing its creation as a result of loan being made. That loan goes bad and poof, there goes dollar value.
Another concern is the potential for the Accord to include a provision where US debt is backed by federally owned land or other US assets. Collateralizing U.S. debt with federally owned land is a concept that may not sell in the political markets. While highly unlikely, what would be the fallout from a default on payments on debt backed by federal land?
Again, the President has not hinted that he definitively accepts the concept, but it would be in keeping with what is thought to be his penchant for mercantilism. As the world teeters on deglobalization, I expect that policies will be pursued that keep the American economy at the world’s core.
Alton Drew
3 March 2025
News scan:
Congress. Federal Reserve. “House Financial Services Committee Chairman French Hill (R-AR) and Senate Banking Committee Chairman Tim Scott (R-SC) led a letter to Treasury Secretary Scott Bessent highlighting the need to quickly fill the role of Vice Chair for Supervision of the Board of Governors of the Federal Reserve System.” — US House Committee on Financial Services.
Note: Under 12 USC Sec. 242, the President nominates the chairman and two vice chairmen of the Federal Reserve Board, with one of the vice chairmen to serve as vice chair for supervision.
White House. Taiwan Semiconductor Manufacturing Company. “Today, President Donald J. Trump joined Taiwan Semiconductor Manufacturing Company (TSMC) CEO C.C. Wei to announce a historic $100 billion investment by TSMC in its Arizona-based semiconductor chips manufacturing operation — the largest foreign direct investment in U.S. history.” — Executive Office of the President.
Bond yields. Mortgage rates. “Mounting concerns that the Trump administration’s tariff proposals, federal layoffs and tighter immigration policies could reduce economic growth have driven bond yields down. The popular 30-year fixed-rate mortgage is closely tied to the 10-year Treasury note, so lower bond yields translate to lower borrowing costs for homebuyers.” — MSN.
Currency. Trump. Mar-a-Lago Accord. “A theory about how the Trump administration could restructure the international financial system to better serve American interests is starting to be taken seriously on Wall Street.” — MSN.
Currency. Trump. China. Japan. “U.S. President Donald Trump said on Monday he told leaders of Japan and China they cannot continue to reduce the value of their currencies as doing so would be unfair to the United States. Instead of complaining repeatedly over the phone over such attempts, the U.S. could make up for the disadvantage its manufacturers receive by imposing tariffs, Trump added.” — Reuters.
The data …
U.S. Treasury rates
The two-year, ten-year, and thirty-year Treasury rates moved down between 9:30 am this morning and 4:30 pm this afternoon. According to Treasury data, the two-year rate fell from 3.99% to 3.96%. The ten-year rate fell from 4.24% to 4.16%, while the 30-year rate fell from 4.51% to 4.55%.
Federal Reserve Bank of New York reference rates.
Meanwhile, the Federal Reserve Bank of New York reported an uptick in three of its reference rates. The Effective Federal Funds Rate for domestic unsecured borrowings between commercial depository institutions is at 4.33%. The Overnight Bank Funding Rate, a measure of wholesale, unsecured overnight bank funding costs, also held at 4.33%.
The Secured Overnight Financing Rate, which measures the cost of borrowing cash overnight secured by Treasury securities, increased from 4.36% to 4.39% while the Broad General Collateral Rate, a measure of rates on overnight Treasury general collateral repurchase agreement transactions, increased from 4.34% to 4.36%.
The Tri-Party General Collateral Rate, a measure of rates on overnight, specific counterparty, tri-party general collateral repurchase agreement transactions, also increased from 4.34% to 4.36%.
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