Do any of you believe that there is any truth that the sitting administration is going to do something like the Mar-a-Lago Accord?
Here from Perplexity:
The Mar-a-Lago Accord is not an official agreement, but rather a proposed economic framework that has gained attention in recent months. It is named after former President Trump's Florida resort and draws inspiration from the 1985 Plaza Accord. While not yet implemented, the concept is being seriously discussed by financial analysts and policymakers.
Key Components of the Proposed Mar-a-Lago Accord
Currency Devaluation
The plan aims to intentionally weaken the US dollar to boost American exports and reduce trade deficits12. This strategy is reminiscent of the 1985 Plaza Accord, which sought to devalue the dollar against other major currencies.
Debt Restructuring
A central element involves restructuring US debt by converting short-term Treasury notes into 100-year "century bonds" that pay little or no regular interest24. This would force foreign creditors to extend the maturity of their US debt holdings significantly.
Tariffs and Trade Policy
The framework includes the use of tariffs as a negotiating tool to pressure trading partners into accepting new economic arrangements12. This aligns with Trump's previous trade policies aimed at reshoring manufacturing and reducing trade deficits.
Security-Economic Integration
The plan proposes leveraging US security guarantees as a bargaining chip in economic negotiations1. This could involve extracting increased NATO contributions or potentially replacing existing security arrangements with ones more favorable to US interests.
Sovereign Wealth Fund
The creation of a US sovereign wealth fund is proposed, potentially using national assets like gold reserves and digital currencies2.
Potential Impacts and Risks
Economic Effects
Possible revival of US manufacturing through reshoring
Reduced trade deficits and lower borrowing costs for the US
Risk of consumer price inflation due to higher import costs
Potential for stagflation if high inflation combines with lower interest rates2
Global Implications
Restructuring of global economic relationships
Potential damage to allied relationships
Threats to the dollar's status as the world's reserve currency25
Current Status
As of March 15, 2025, the Mar-a-Lago Accord remains a speculative concept rather than an official policy. However, recent actions by the Trump administration suggest that elements of this framework may be moving from theory to implementation:
A February 3, 2025 Executive Order related to a Sovereign Wealth Fund mentioned digital assets2.
Treasury Secretary Scott Bessent has called for a "global economic reordering"2.
Stephen Miran, Trump's nominee for Chair of the Council of Economic Advisers, has published detailed papers on the framework12.
While the Mar-a-Lago Accord is not yet "real" in the sense of being an official policy or agreement, it represents a set of ideas that are being seriously considered and potentially implemented in parts by the current US administration. The financial markets and global policymakers are closely watching these developments, as they could have significant implications for the global economic order35.
I think there might be some actors in the administration (Bessent, Lutnick) that have something like this in mind, but I'm not sure the primary does. His attention seems too scattered to focus on something like this. However, if this is the goal then steps by the administration to date seemly likely to achieve the negative outcomes and not the positive ones.
1.) Revival of US Manufacturing - the actions against Canada and Mexico work against this goal in my opinion, unless they are aiming for complete autarky which is foolish. Tariffs on steel and aluminum seem like they will be crushing for the development of US manufacturing except at the lowest levels of the value chain.
2.) Reduced Trade Deficits / Lower Borrowing Costs - well I expect a deep recession might help with both of these goals, but if inflation doesn't go down due to the trade war then lower borrowing costs might be an elusive goal
3.) Consumer Price Inflation - this seems likely if they continue on the current path. I am also not sure that it will just be a one time increase in the price level. The combined impact of the tariffs, deportation of immigrants, and severing of trade ties with Mexico and Canada seems like it will crush the short to medium term productive capacity of the United States and possibly lead to a wage-price spiral.
4.) Stagflation - this is what i am expecting to happen
At this point I just hope that I am wrong about everything. Better to be wrong than deal with implications of being right in this case.
The real point is not whether there are specifically similar agreements, but rather that the underlying spirit is similar: once again, the United States is trying to save its own economy at the expense of the rest of the world.
This happens all the time, but it's more obvious with Trump's election, like “children in cages”.
If you are worried about this, you should hedge your US stocks with currency futures.
Also, the analysis implied by the notion of “stagflation” was actually wrong; the main problems of the economy in the 1970s were that inflation was too low and interest rates were too high, leading to underemployment and too low output.
Even the famous Weimar German hyperinflation was actually a boon to the economy in that it fully utilized German productivity, led to very low unemployment, raised the standard of living of the average German, and essentially eliminated Germany's national debt beyond war reparations (not to mention the cost of the debt) but it really wasn't a boon to investors.
Yes, I see that. It's an interesting thought if it turns out that this is a solution the administration is adopting. I don't know yet, but the way they have proceeded now with trading partners might indicate that at least parts of this plan are what they've settled on.
Whether it will work, I don't know, but I doubt it, and certainly not without significant volatility in the market going forward, and most of you are much closer than me to the Canadian and American markets and probably see if it's accurate.
The interesting part for me is the currency. If the USD falls significantly (40% under the Plaza A) in the future, it will have a major impact on the ability of an international investor to make money in the US market.
It must also be important for most investors here to be aware of this, as it will obviously have implications for most people's investments when such large calibrations are made in the global trading system. So this is not just geopolitically interesting for the potential next four years, but also to see if P123's focus on Europe and Asia could be a good investment
Currency: A form of Mar-a-Lago Agreement aims to weaken the US dollar. Historically, the Plaza Accord in 1985 led to a decline of around 40% in the value of the dollar over two years. It's possible that a Mar-a-Lago Agreement could target a similar effect, but the extent is uncertain. A weaker dollar may lead investors to seek refuge in other currencies such as the euro and yen.
Bonds: The agreement could create turmoil in the US Treasury bond market. There is a risk that US bond yields and borrowing costs will increase. The proposal to exchange foreign-held US debt for 100-year zero-coupon bonds could also negatively impact the market.
Stocks: Sectors such as advanced manufacturing in the US (like semiconductors and clean energy) could potentially benefit from the agreement's focus on domestic production and a weaker dollar making exports more competitive. A weaker dollar in general could also support US exports.
Commodities: Gold is seen as a potential winner under a Mar-a-Lago Agreement. Historically, a weaker dollar increases demand for gold as a store of value. Devaluation of the dollar could also trigger a chain reaction in commodity markets in general.
Thank you for these interesting insights. I've been wondering about this policy for several weeks.
I agree with Whycliffes when he says that P123's focus on Europe and Asia is a good investment. In fact, these regions are currently outperforming US stocks. I think now is the time to encourage the project in Asia and emerging markets.
Regarding US stocks, I don't necessarily view the potential weakening of the US dollar negatively. As a Swiss investor, I'm used to tolerating a weak dollar against the Swiss franc. In the long term, the appreciation in stocks offsets the currency's devaluation. This is especially true since a weak dollar encourages US exports.
What puzzles me much more is the far-fetched plan to restructure US debt by converting Treasury bills into century bonds. I'm really struggling to grasp all the implications:
on current Treasury bonds
on the Treasury bonds that will be issued following this restructuring
on the credibility and attractiveness of the US government as a bond issuer.
It seems to me that among the Mar-a-Lago agreements, the debt restructuring is the worst of all.
The main problem is that long-term bonds are more expensive.
However, there is no need to worry about “credibility and attractiveness”, just print money.
Edit:
The accompanying “high” inflation can also help to address inconvenient problems such as trade deficits, lack of effective domestic demand and the national debt.
If the only issue was potential dollar weakness I would not be that worried: a diversified portfolio + the advantages of cheaper US goods/services (like the P123 subscription) should keep the pain limited. I'm more worried about a loss of safe haven status, weakening protection of private property (especially for foreign investors), and new capital taxes on foreign investments or inflows.
I'm exposed to the US market through Norway's SWF, so I'm wondering if I should just ditch all my personal US investments and stick to the rest of the world.
Whether WWIII actually occurs or counties succeed in building their military forces enough to act as an effective deterrent, increased deficit spending in NATO countries seems likely. They are already making early (non-binding) promises to do that. And there have already been increases.
"Overall, total NATO spending increased by 11% in 2024, compared to 3% in 2023. Growth was even stronger among NATO’s European members, who increased their combined military spending by 19% in real terms in 2024, following not-insignificant growth of 9% in 2023." Source: NATO Spending
Lots of moving parts so not making any predictions about currency devaluations or safe investments with this small part of the big picture.
More generally, deficit spending seems to be increasing everywhere. How much of a problem is it? If it is problem is it more of long-term problem or is now the time to change our investment strategies? And is it just a US problem?
"global public debt is projected to exceed $100 trillion, or about 93% of global GDP, by the end of this year, approaching 100% by 2030."
Fiscal deficits are not a problem, they are a painkiller, for the economy and the society.
The national debt is not a problem as long as there is high inflation and thus, a low real interest rate (r<<g).
The Debt to GDP for China is underestimated because much debt is still hidden now.
If you're talking about bond returns, then an insurance-like strategy (trend following and so on) is a better allocation to non-equity assets than bonds alone.
