From Steve Kamin, two pieces: [1] [2]. A succinct summary:
So all told, Miran’s suggested options to lower the dollar while containing interest rates would be ineffectual, destabilizing, and ultimately for no good purpose. In his conclusion, he acknowledges some of these risks, but argues that because of Trump’s focus on financial markets, “I therefore expect that policy will proceed in a gradual way that attempts to minimize any unwanted market consequences…” Well, if the past few weeks of trade policy are any indication, be afraid . . . be very afraid!
From Kamin and Sobel in the FT, “Mar-a-Lago Accord, Schmar-a-Lago Accord
Anatomy of a bad idea”:
…there has been no announcement by the Trump administration or even a tweet by Trump, but Miran’s paper — along with various utterances by Treasury Secretary Scott Bessent — have led Wall Street observers to believe such an initiative is indeed in the offing.
And that’s too bad, because a Mar-a-Lago Accord would be pointless, ineffectual, destabilising, and only lead to the erosion of the dollar’s pre-eminent role in the global financial system.
Some thoughts on screen, from Jeff Frankel (see his commentary), Brad Setser, Mark Sobel and Alex J. Pollock, here:
Mark Sobel speaks at min 32:30.
Torsten Slok/Apollo (March 9) asks three questions:
For markets, this raises three questions:
1) The changes that are required to existing US manufacturing production, including eliminating Canada and Mexico from all auto supply chains, will take many years. Can the US achieve the long-term gain without too much short-term pain?
2) Globalization has for decades put downward pressure on US inflation. Will a more segmented global economy with a much bigger manufacturing sector in the US put too much upward pressure on US inflation, given the higher wage costs in the US than in many other countries?
3) With tariffs being implemented, the rest of the world may over time begin to decrease its reliance on US markets and also increase their own defense spending. Under such a scenario, what are the incentives for the rest of the world to sign a Mar-a-Lago Accord?
Under Biden – the U.S. had the best economy in the world – under trump the U.S. will become a vassal state of declining Russia – the U.S. can look forward to reduced incomes, reduced healthcare and education services, and greater wealth inequality under trump. Meanwhile China and the EU and Canada and Mexico will be seeking more reliable trading partners elsewhere – https://www.bloomberg.com/news/articles/2025-03-28/xi-meets-global-business-leaders-as-china-seeks-to-woo-investors
Off topic – as trump cuts EPA and climate change research and takes off climate change data from govt websites – climate change says trump who? BTW, Mar a Lago will be swamped in 20 years – https://www.eurekalert.org/news-releases/1078508
As I live and breathe, never expecting such dam-fool behavior from our elected officials, who care not whom they hurt.
It has become generally accepted in economics that there is an important global impulse to inflation. That global element was on full display during the Covid inflation episode, but well before that, it was recognized that countries tied into the global economy experience similar fluctuations in inflation. The period of below-targer inflation in the U.S. was also a period of below-target inflation for many other developed economies.
What happens when a developed economy reduces its exposure to the rest of the world? If the tools used to separate the U.S. economy from the rest of the world are themselves inflationary, that’ll mean higher inflation, but what about the discrete effect of reducing U.S. exposure to global influences?
I suppose that comes down to what the global inflationary impulse is doing. Has the global factor become less disinflationary? Has it become outright inflationary?
Statista has a world inflation measure which puts inflation in 2024 at 5.67%, down from 2022 and 2023, but otherwise the highest since 2008. Keep in mind that outliers like Venezuela and Turkey are skewing the global rate upward. Meanwhile China, perhaps the biggest contributor to disinflation over the last 40 or so years, is again a drag on inflation.
Anyhow, the short term in the U.S. I’d likely to be a period of higher inflation (assuming no recession), whatever the global impulse turns out to be. The global impulse will certainly matter in the medium and longer term, but less so if the felon-in-chief succeeds in making us a pariah state.
It has become generally accepted in economics that there is an important global impulse to inflation. That global element was on full display during the Covid inflation episode, but well before that, it was recognized that countries tied into the global economy experience similar fluctuations in inflation. The period of below-targer inflation in the U.S. was also a period of below-target inflation for many other developed economies.
What happens when a developed economy reduces its exposure to the rest of the world? If the tools used to separate the U.S. economy from the rest of the world are themselves inflationary, that’ll mean higher inflation, but what about the discrete effect of reducing U.S. exposure to global influences?
I suppose that comes down to what the global inflationary impulse is doing. Has the global factor become less disinflationary? Has it become outright inflationary?
Statista has a world inflation measure which puts inflation in 2024 at 5.67%, down from 2022 and 2023, but otherwise the highest since 2008. Keep in mind that outliers like Venezuela and Turkey are skewing the global rate upward. Meanwhile China, perhaps the biggest contributor to disinflation over the last 40 or so years, is again a drag on inflation.
Anyhow, the short term in the U.S. is likely to be a period of higher inflation (assuming no recession), whatever the global impulse turns out to be. The global impulse will certainly matter in the medium and longer term, but less so if the felon-in-chief succeeds in making us a pariah state.
Off topic – tracking AI.
For those interested, these folks claim to be tracking the uptake of AI into the econo.y, or something:
https://www.anthropic.com/news/anthropic-economic-index-insights-from-claude-sonnet-3-7
I have no way of knowing whether they are any good.
Brett Arends is a pretty well-regarded business journalist, but not a great economic thinker. He has, rather uncritically, written that the felon-in-chief wants a recession so that he can have a lower dollar without – pick one – higher inflation or a higher deficit/higher borrowing costs:
https://www.msn.com/en-ie/money/markets/here-s-the-real-reason-trump-wants-to-create-economic-chaos-and-why-investors-should-be-more-afraid/ar-AA1BIun3?ocid=finance-verthp-feeds
The article is a muddle. I suspect the problem is that Arends doesn’t understand the issues he’s writing about, and strings together ideas that don’t go together.
Here’s a quote that does make sense: “Trump needs a falling dollar, not rising inflation.”
Fair enough. Recession is the obvious bridge between a weaker dollar and tame inflation. However, when Arends quotes an economist who wishes to remain anonymous, his story goes awry. That economist reportedly claims that recession will help lower either the deficit or federal interest costs. Here’s the federal deficit as a share of GDP:
https://fred.stlouisfed.org/series/FYFSGDA188S
The deficit has been trending larger since around 1970 and has been more volatile since around 1980. In that volatile period, episodes of a widening deficit has been associated with either recession or large tax cuts. The idea that a recession will narrow the deficit to pay for a tax cut is simply wrong. In fact, episodes of a narrowing deficit have been associated with tax increases and economic expansion.
By the way, here’s federal interest expense as a share of GDP, alongside PCE inflation:
https://fred.stlouisfed.org/graph/?g=1G0M7
Notice that individual recessions don’t have much influence on interest expense. Interest expense goes through regime changes, driven by inflation. In the 1980s, the rise in interest expense lagged behind inflation considerably. In the recent episode, the lag was very short. That’s because the stock of debt is much larger as a share of GDP today than during the inflation of the 1970s and 1980s; as the larger debt is refinanced, interest cost rises quickly. Arends’s contension that a recession will somehow reduce the deficit or the interest cost on the deficit doesn’t fit the facts.
One possible explanation, an explanation which fits pretty well with conventional journalism, is that Washinton propagandists are claiming that recession could reduce interest costs, without caring whether that claim is true, and Arends simply parrots back what he has been told.
Arends makes another claim which I can’t evaluate, but which I hope is wrong. The main point of the article is that the felon-in-chief’s tax-cut proposal is so expensive that only chaos is required to get it through Congress.
I don’t know how we could do it, but we need to teach legislators how to look past the felon’s chaotic antics. Passing legislation during a storm of word salad which could not pass if debated calmly is bad business.
the problem is that when writing about trump, people assume there is some amount of logic to his decision making. there is none. trump wants A, but is unwilling to accept the consequences of A, because he also wants B and C. so his propaganda folks simply flood the airwaves with the statements that A will produce B and C, so he is genius and we need to follow his plan. rational logic is not a part of the true orbit. and you are at a disadvantage if you try to view his actions through such a lens.
there is a reason so many of the trump businesses have gone through bankruptcy. multiple times. he is not a smart business man. he is simply a bully.