Read Trump's playbook, right here
"Houston, we have a problem..."
The entire world has a major problem, with a “loose cannon” attempting to control the whole world. (Sorry this post is rather wonkish)
It is no mystery what Dear Leader is planning to do next - just d/l this article “A User’s Guide to Restructuring the Global Trading System,” by Stephen Miran, in PDF.
Here’s a part from Conclusion (page 38):
“In any case, because President Trump has shown tariffs are a means by which he can successfully extract negotiating leverage—and revenue—from trading partners, it is quite likely that tariffs are used prior to any currency tools.
Because tariffs are USD-positive, it will be important for investors to understand the sequencing of reforms to the international trading system. The dollar is likely to strengthen before it reverses, if it does so.
There is a path by which the Trump Administration can reconfigure the global trading and financial systems to America’s benefit, but it is narrow, and will require careful planning, precise execution, and attention to steps to minimize adverse consequences.”
Would you (or any country) be coerced into buying a century- or "perpetual"- UST securities? Or pay a "user fee" for holding them? In order to help pay the cost of the US "security umbrella" that it provides for you? Or would you rather have Peace, not forever-wars?
From page 30:
Unilateral Currency Approaches
Consensus on Wall Street is that there is no unilateral approach that the Trump Administration can take for strengthening undervalued currencies. These economists tend to point to the Federal Reserve’s policy rate as the main driver of the dollar and then emphasize that the Fed will not cut rates merely because the President wants to achieve a currency outcome.
This conclusion is wrong. There is a variety of steps an Administration can take if it is willing to be creative, that do not rely on the Fed cutting rates.
IEEPA
For instance, the International Emergency Economic Powers Act, signed into law by President Jimmy Carter in 1977, gives the President sweeping powers over international transactions in response to foreign-origin threats “to the national security, foreign policy, or economy of the United States.”18 Such powers include the ability to limit or prohibit transfers of credit, payments or securities internationally.19 The Act is an important foundation of Treasury’s sanctions powers and financial extraterritoriality.
IEEPA can also be used to disincentivize the accumulation of foreign exchange reserves, if the Administration wills it. If the root cause of dollar overvaluation is demand for reserve assets, Treasury can use IEEPA to make reserve accumulation less attractive. One way of doing this is to impose a user fee on foreign official holders of Treasury securities, for instance withholding a portion of interest payments on those holdings. Reserve holders impose a burden on the American export sector, and withholding a portion of interest payments can help recoup some of that cost. Some bondholders may accuse the United States of defaulting on its debt, but the reality is that most governments tax interest income, and the U.S. already taxes domestic holders of UST securities on their interest payments. While this policy works through currencies as a means of affecting economic conditions, it is actually a policy targeting reserve accumulation and not a formal currency policy.
Legally, it is easier to structure such a policy as a user fee rather than a tax, to avoid running afoul of tax treaties.
Such policy is not a capital control, since aiming it exclusively at the foreign official sector targets reserve accumulation rather than private investment.
18) 50 U.S.C. §1701(a)
19) 50 U.S.C. §1702(a)1
(continuing on page 31):
Of course, a user fee risks inducing volatility. Incentivize too much reserve selling and there can be a rout in the dollar, spikes in interest rates, and limits to our powers of financial extraterritoriality. However, there are steps an Administration can take to mitigate these risks: First, start small and take small steps. By starting with a small user fee, say 1% of interest remittances, Treasury can avoid provoking a deluge of flows. If that’s not sufficient to achieve the desired devaluation, go up to 2%. And so on. With such a drastic change in policy with enormous potential consequences, gradualism is necessary. It’ll take time to find the “right” level, but patience will help reduce adverse consequences. To become even more gradual, Treasury could explore imposing a fee only on new issues, rather than old ones.20
Second, as in tariffs, differentiate among countries. Presumably the Administration would want to withhold remittances to geopolitical adversaries like China more severely than to allies, or to countries that engage in currency manipulation more severely than to those that do not. The Administration would likely want to give our allies the benefits of reserve currency usage, not our adversaries. Tax rates experienced by different nations on their reserve holdings can be a function of their relationship with America. Treasury can implement the fees through securities custodians and financial intermediaries; it is well within Treasury’s anti-money-laundering and financial intelligence toolkits to do a good job identifying the beneficial owners of most of Treasurys.
20) This might also help alleviate any concerns about the constitutionality of this measure with respect to the contracts clause.
This folks, is a gradual sovereign default of the US, a percentage at a time! It seems we have here an author who while seeming very economically literate, is viewing world affairs through a very narrow, sheltered US perspective. To get what I consider a more informed view on reserve currencies, do read Jeff Rubin’s book: A Map of the New Normal. Trump CANNOT obliterate the US trade deficit with almost all nations AND maintain the US$ as the world reserve currency. Thanks to Biden’s sanctions, as Jeff Rubin says, that world no longer exists.
References:
https://www.penguinrandomhouse.ca/books/714717/a-map-of-the-new-normal-by-jeff-rubin/9780735246119
Keep this web address: https://www.mccroskey.ca/limitstoprogress.htm in case Substack gets censored by the Dump admin. These posts are being mirrored there. They are all written in plain-text HTML (xml) and have no paywalls, ads, cookies, pop-ups, scripts or tracking methods, and are stored in a secure web server in a bunker in Ontario.
Please have a look at my books at https://www.amazon.com/stores/Kathleen-McCroskey/author/B09GLMJRM2
[edited Feb 4, changed “wonky” to wonkish and fix one typo and moved next paragraph from comments to here]
Nations of the world: Listen up! If you are exporting to USA, DO NOT ever accept US$ as payment! Only accept your own currency or gold. If you accept a US$, you have not accepted money, you have accepted a piece of debt - and in the other direction, you have just handed over another little bit of your sovereignty. Remember, Trump is out to BURN you!
The road to redemption begins with showing contrition. Arrogant buffoonery plays the foolish pariah. Humility, truth and being penitential are where the healing begins.
Trump is a pathetic prisoner to his out of control ego.