At Forbes, 21 April 2025, via Google News - Business:
Trump Issues Huge Fed Challenge—Sparking Stock Market Plunge As Gold And Bitcoin Price Soar
04/21 update below. This post was originally published on April 20
Bitcoin and crypto prices are treading water after U.S. president Donald Trump’s trade war sparked market chaos that’s threatening to spiral into a full-blown “U.S. dollar confidence crisis.”
The bitcoin price has plummeted from its January peak of almost $110,000 per bitcoin, dropping along with the stock market, as crypto hurtles toward a $19 trillion “tipping point.”
Now, as billionaire Ray Dalio warns the U.S. is teetering on the verge of a financial crisis and recession that could be worse than 2008, the White House has confirmed Trump is exploring whether he can fire Federal Reserve chair Jerome Powell—something that could trigger an “apocalyptic scenario" for markets.
...
1. Ray Dalio warns of financial crisis and recession that could be worse than 2008.
I say again: Trump wants to create a depression.
And evidently, the White House is still exploring its options in regard to firing Powell, no matter the risk of "a full-blown 'U.S. dollar confidence crisis'" and "an 'apocalyptic scenario' for markets."
And it is the reputable Forbes reporting this.
2. RE: “U.S. dollar confidence crisis”
On 8 April when I was still trying to figure out what Trump is trying to do with his economic policies, Oilfield Trash left a comment:
Give this a read...This is what they are trying to do but because of time issues are not doing it well because they are not being surgical...
The link is to "A User’s Guide to Restructuring the Global Trading System", a 41-page PDF dated November 2024. Here are the first two paragraphs from the "Executive Summary":
The desire to reform the global trading system and put American industry on fairer ground vis-à-vis the rest of the world has been a consistent theme for President Trump for decades. We may be on the cusp of generational change in the international trade and financial systems.
The root of the economic imbalances lies in persistent dollar overvaluation that prevents the balancing of international trade, and this overvaluation is driven by inelastic demand for reserve assets. As global GDP grows, it becomes increasingly burdensome for the United States to finance the provision of reserve assets and the defense umbrella, as the manufacturing and tradeable sectors bear the brunt of the costs.
The clarity of the statement and the significance of its focus left me awestruck. I don't know if the guy is right or wrong or even what he says, as I only read about a page of it all told. (I have been working myself up to read more of it.)
And then I read the note about the author at the bottom of the page:
Stephen Miran was Senior Strategist at Hudson Bay Capital. He currently serves as Chairman of the Council of Economic Advisers.
Holy shit.
6 comments:
Because of the November 2024 date on the Miran PDF, I checked: Wikipedia and whitehouse.gov/cea/ both confirm that Stephen Miran is Chairman of the Council of Economic Advisers.
Also at Google News - Business, this from the South China Morning Post: "Chinese scholars take on Trump adviser pushing tariff war as prelude to financial revamp"
And below that headline, this: "Stance of Council of Economic Advisers chairman Stephen Miran likened to ‘collecting protection money on the streets’"
I don't have access, so I can't read the article, but I saw plenty. Trump's people all have a gratuitous nasty streak about them. John Oliver called it "active cruelty". It is. I see a touch of the nasty in the criticism of Stephen Miran, in the "collecting protection money" line. But I can't reject the unfavorable evaluation of Miran, because it shows only that the nasty was noticed. Reflecting it back is to be expected. They didn't start it. Sad to say, Trump did.
Gratuitous nastiness is unwise policy.
Let me highlight some excerpts from the four short paragraphs that conclude Miran's PDF:
"The next Trump term [Miran wrote in November 2024] presents potential for sweeping change in the international economic system and possible accompanying volatility..."
My bold. In the conclusion, Miran appears deeply concerned about the risk arising from "volatility". I think he expects Trump-induced volatility to lead to a full-blown “U.S. dollar confidence crisis.”
"This essay," Miran writes, "attempts to provide a user’s guide: a survey of some tools, their economic and market consequences, and steps that can be taken to mitigate unwanted side effects."
My bold. "Unwanted side effects" such as volatility? You can't say he doesn't warn us.
[comment continues]
Miran writes: "Government has many means [to affect the foreign exchange value of the dollar], both multilaterally and unilaterally. No matter what approach it takes, however, attention must be paid to steps to minimize volatility. Assistance from trading partners or the Federal Reserve can be helpful in doing so."
Volatility again, and my bold. Note also that Miran thinks "the Federal Reserve can be helpful". And yet we have Trump making noise about his desire to fire Fed Chair Powell. That makes no sense, unless Trump wants things to go bad.
Miran says "The dollar is likely to strengthen before it reverses, if it does so."
"If it does so," he says. Is he saying he thought the dollar might not weaken? This does not fill me with confidence in the advice the PDF offers. But the warnings give me some hope.
The word volatility occurs 44 times in Miran's 41-page PDF.
And finally, Miran says "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."
The only steps I have seen Trump take to "minimize adverse consequences" of his policies is the tariff waffling: announce them, then pause them, announce them again, and pause them again.
There are a lot of warnings in Miran's brief conclusion. It seems Miran is worried that "Restructuring the Global Trading System" may not work out for the best. I see him keeping a stiff upper lip. But I don't see him doing something that will prevent absolute disaster.
Oilfield Trash, who sent me the link, says of it: "This is what they are trying to do but because of time issues are not doing it well because they are not being surgical." Yikes!
One last thought: Billionaires will survive the Trump Depression unscathed. For the rest of us, it won't be easy. It would be better to prevent the Trump Depression.
Art the problem is the reserve status of the dollar which is the problem to solve. As long as the USA is running a deficit in the CAD we are financing it as the reserve currency.
The economic imbalances, particularly in relation to international trade and currency valuation:
Dollar Overvaluation: This refers to a situation where the value of the U.S. dollar is higher than its true economic worth. This can make U.S. exports more expensive for foreign buyers and imports cheaper for U.S. consumers, leading to a trade deficit.
Persistent Nature: The term "persistent" suggests that this overvaluation is ongoing and not just a temporary situation. This can create sustained imbalances in international trade, where countries import more than they export.
Inelastic Demand for Reserve Assets: Reserve assets are financial assets held by central banks for international transactions. "Inelastic demand" means that there is a strong, consistent demand for these assets (like the U.S. dollar) regardless of changes in their price. Central banks and other investors continue to hold them because they are perceived as safe and stable, which maintains the dollar's high value.
Ongoing overvaluation of the dollar contributes to trade imbalances because it affects how goods and services are exchanged between countries. It is driven by a strong and consistent demand for dollars as a reserve currency, which keeps its value artificially high. This situation can complicate international economic relations and lead to economic challenges both domestically and globally.
Good definitions. Thank you.
I understand that using the Dollar as the Global Reserve Currency makes dollars more valuable, and I see that this could be the source of the "dollar overvaluation". Too bad that problem didn't resolve itself when Nixon "closed the gold window" so many years ago, in 1971.
I do not understand why the problem was allowed to fester for 54 years. I'm pretty sure Ross Perot brought it up in a 1992 presidential debate. But there must be more to this part of the story, the "festering" part.
I still have to look this up, but I recall reading that in the discussions leading to the creation of the Bretton Woods system, Keynes wanted to use something other than the US Dollar as the reserve currency, perhaps something similar to the SDR of the IMF. So I think Keynes understood the Triffin Dilemma before Triffin did. And I think there is definitely something to it.
However, I am not convinced that dropping my focus on money and credit and domestic monetary policy, and shifting my focus to the US Dollar as the Global Reserve Currency, is an appropriate response. I'm not convinced it is the appropriate response. I still want to argue that there are huge gaps in the logic of monetary policy. I still want to say that if those gaps were properly filled, the current account deficit might be insignificant today.
Since the early 1980s, the Balance on Current Account (with a minus sign in front of it) appears to average maybe 30 percent of US Exports, and maybe 20 percent of US Imports. If either graph shows a trend of increase, the increase is surely a small one.
In other words, it seems to me that the growth in our Balance on Current Account is due mostly to the growth of our imports and exports. In other words, the increase in our current account deficit is a result of globalization and not of "unfairness" arising from "Dollar Overvaluation". If we were to back away from globalization (with the ratios on the graphs unchanged) then we would have as a result less exports, less imports, and a smaller current account deficit.
So I want to say that our big current account deficits are the result of globalization, and not the result of the Triffin Dilemma.
(I would have to think about this for a very long time before I could say it with confidence.)
I downloaded the FRED data to Excel. I look at
-NETFI as a percent of EXPGS (blue)
-NETFI as a percent of IMPGS (red) and
-NETFI as a percent of the Average of EXPGS and IMPGS (green)
with linear trendlines in matching colors.
The one Excel graph runs from 1980 to 2024. The trendlines slope upward more than I expected them to.
The other Excel graph runs from 1983 to 2024. The trendlines are much flatter on this graph -- about a 5 percentage point increase in 4 decades. Omitting the 1980 and 1982 recessions makes a big difference.
I stand by what I said: Our big trade deficits were caused mostly by globalization, not mostly by using the US Dollar as Global Reserve Currency.
What say you?
Hello, Art,
I think you need to change lenses and see globalization as a natural result of the dollar’s reserve status. If you look at the basics of the Triffin dilemma, you’ll see it describes the conflict between a reserve-currency country’s short-term domestic objectives and its long-term international obligations. In the 1970s, the United States accepted the burden of ongoing trade deficits; by 1985, it had permanently transformed from a creditor to a debtor nation.
The answer lies in recognizing two distinct equilibrium concepts for currencies:
Trade-based equilibrium.
In standard international-trade models, currencies adjust over the long term to balance trade flows. A country running a sustained trade surplus accumulates foreign currency, selling it for its own currency and thereby pushing its currency higher—until stronger exchange rates curb exports, boost imports, and restore balance.
Financial-market equilibrium.
Here, savers choose among global investment opportunities. Exchange rates adjust so that, on a risk-adjusted basis, investors are indifferent between assets denominated in different currencies.
When a currency—like the U.S. dollar—achieves “reserve” status, it becomes the preferred asset for central banks, multinationals, and private investors worldwide. That status has several knock-on effects that reinforce deeper globalization:
Liquidity for trade and policy. Reserve holdings (e.g. foreign-exchange reserves or sovereign-wealth funds) are often held for stability or policy reasons, not purely for return maximization.
Inelastic demand. Much of the global demand for dollars and Treasurys is insensitive to fundamentals. For example, Treasurys purchased to collateralize trade between Micronesia and Polynesia are bought regardless of U.S. trade balances or relative yields.
When the reserve country is large relative to the rest of the world, externalities from its reserve status are limited—the Triffin and trade equilibria stay close. But if global growth outpaces the reserve country’s growth for an extended period, tensions rise: demand for reserve assets causes significant currency overvaluation and real economic distortions.
In a Triffin world, the issuer of the reserve asset must run persistent current-account deficits to supply those assets. U.S. Treasurys effectively become an export product that fuels global trade. America runs large current-account deficits not because it imports too much, but because it must export Treasurys to provide reserve assets and support global growth.
Much of this echoes the paper I sent you, which I wholeheartedly agree with. Once the dollar emerged from World War II as the recognized reserve currency, our current-account-deficit dynamics were effectively locked in.
Globalization is often described as a choice, but reserve status skews the playing field—and hinders the natural balancing of trade deficits between nations.
Hello O.T... I didn't see your remarks above until just now!
I want to say you have a really good feel for the Triffin dilemma. I can see that much, at least. For me it takes a long time for the ideas to sink in.
One thing you said above troubles me: "In a Triffin world, the issuer of the reserve asset must run persistent current-account deficits to supply those assets." I knew you were gonna say that. And then you said it again: "America runs large current-account deficits not because it imports too much, but because it must export Treasurys to provide reserve assets and support global growth."
I got stuck on that for a while. Then I went back and read this:
"Demand for reserve assets causes significant currency overvaluation" and now what you said makes sense.
At Wikipedia
https://en.wikipedia.org/wiki/Bancor
"U.S. Secretary of the Treasury Timothy Geithner expressed interest in the idea of greater use of SDRs as a reserve. However, he was criticized severely for this in the United States, and the dollar lost 5 cents against the euro in exchange markets following his statements."
Is that what Trump is trying to do, let the dollar fall until people are willing to use SDRs as Global Reserve Currency?
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