Latest news with #MarALagoAccord
Yahoo
26-06-2025
- Business
- Yahoo
A new plan might be taking shape in Washington to help manage explosive U.S. debt
Forget the Mar-a-Lago Accord, the buzzy proposal for how the U.S. might be able to tame its increasingly unwieldy debt while boosting domestic manufacturing in the process. See: Wall Street can't stop talking about the 'Mar-a-Lago Accord.' Here's how the currency deal would work. My job is offering me a payout. Should I take a $61,000 lump sum or $355 a month for life? 'He doesn't seem to care': My secretive father, 81, added my name to a bank account. What about my mom? Israel-Iran clash delivers a fresh shock to investors. History suggests this is the move to make. I'm 75 and have a reverse mortgage. Should I pay it off with my $200K savings — and live off Social Security instead? Coinbase's stock sees a 'golden cross.' Why it may not be a bullish signal to buy. George Saravelos, a strategist at Deutsche Bank, has devised a new framework for how the U.S. could better manage its debt without actually doing much to reduce it. He calls it the 'Pennsylvania Plan,' after Pennsylvania Avenue in Washington. Elements of the proposal appeared to have already been implemented, he said. Saravelos's proposal wouldn't do much to alleviate the national debt. In fact, it would most likely push yields on long-dated Treasurys higher. But it could buy the U.S. more time to fix the problem, which is critical considering that the appetite in Washington for raising income taxes on individuals and businesses remains quite limited, according to Saravelos. The national debt has topped $36 trillion, according to data posted online by the Treasury Department. Already, the strategist has seen signs that the Trump administration is gravitating toward making some elements of this plan a reality. President Donald Trump's budget bill, known as the 'One Big Beautiful Bill Act,' is likely to soon be voted into law. Several senior Federal Reserve officials, including governors Christopher Waller and Michelle Bowman, have started to push for a rate cut in July. On Wednesday, the Fed's board of governors will meet to discuss revising the Fed's supplementary leverage ratio standards. The change is being championed by senior members of the Trump administration, and, if enacted, would make it less costly for big banks to hold more Treasury debt on their books. 'While all of these events may appear unrelated at first, we believe they are foreshadowing a potential major change in the U.S. macroeconomic policy mix in coming years,' Saravelos said in a report shared with MarketWatch on Tuesday. Saravelos's plan involves two key pillars, and ideally it would be coordinated by the Treasury Department, which, like the White House, is located on Pennsylvania Avenue. The broad strokes involve reducing the reliance on foreign investors to absorb much of the supply of newly issued U.S. debt, while adopting policies that encourage U.S. pension funds and other domestic investors to step in and buy more. While reducing the deficit by either raising taxes or cutting spending would certainly help address the debt, Saravelos said there is simply no appetite in Washington to tackle the debt head on. The version of Trump's budget plan passed by the House in May would increase deficits over the next 10 years, according to an analysis by the Congressional Budget Office, although some Trump administration officials have argued that revenue from tariffs could help to offset that. The administration's advocacy for stablecoins — cryptocurrencies typically pegged to the dollar, usually at $1 per coin — could help the administration put Saravelos's plan into action, since stablecoins are often backed by Treasury bills and other ultra-safe assets. Their growing use could boost demand for U.S. debt. Also, the push for exempting Treasurys from banking leverage ratios could increase banks' capacity to absorb more government bonds. In Saravelos's view, the biggest vulnerability facing the U.S. economy isn't the national debt, or the yawning trade deficit in goods. Instead, the fact that foreign investors own far more U.S. assets than U.S. investors own of foreign assets means the U.S. has become dangerously dependent on foreign money. If nothing is done to change this, it could potentially destabilize the Treasury market if more foreign investors choose to move their money elsewhere, Saravelos said. Deutsche Bank has highlighted signs that foreign investors have started to pull their money from U.S. assets since Trump unveiled his 'liberation day' tariffs on April 2, although it appears to be a gradual process so far. Still, foreign investors reducing their exposure to the U.S. dollar have been blamed for contributing to a nearly 10% drop since the start of the year in the ICE U.S. Dollar Index DXY, which tracks the value of the dollar against a basket of rivals. Many of the 'liberation day' tariffs were delayed shortly after the original announcement, but Saravelos said worsening geopolitical uncertainty will likely continue to encourage foreign investors to bring more of their capital home. The ultimate goal of Saravelos's plan would see a larger share of U.S. debt wind up in the hands of U.S. investors. Two other ancillary elements include a weaker U.S. dollar and easier Fed policy. Mounting political pressure on the central bank to cut rates could help ensure that borrowing costs, at least on the short end of the curve, remain low, which should help keep a lid on the dollar's strength. Trump has repeatedly threatened to replace Fed Chairman Jerome Powell once his term expires next year. Stephen Miran, Trump's chairman of the Council of Economic Advisers, has been widely credited with codifying the Mar-a-Lago Accord in a paper he published late last year, although others have certainly contributed as well. Miran has said during interviews that his paper wasn't meant to advocate for a specific policy agenda. The Mar-a-Lago Accord, as envisioned in Miran's paper, involved striking deals with U.S. trading partners to weaken the dollar, similar to currency accords of the past. It also mentioned pressuring U.S. allies to swap holdings of Treasury bonds, notes and bills for ultra-long-term debt, while potentially charging a user's fee on interest paid to foreign bondholders by the Treasury. Why this banking proposal may mean good news for the bond market and investors We're living in 'end times' when you can't retire on $1 million My cousin died before claiming his late father's $2 million estate. Will I be next in line? Israel-Iran conflict poses three challenges for stocks that could slam market by up to 20%, warns RBC Two ETFs that have beaten value stock indexes with this simple approach
South China Morning Post
04-06-2025
- Business
- South China Morning Post
What's up with Section 899 of Trump's ‘big beautiful bill' and its ‘retaliatory' taxes?
With the market taking a closer look at the 'One Big Beautiful Bill Act' after it was narrowly passed by the US House of Representatives on May 22, a clause called Section 899 has caught the attention of investors worldwide by including a new set of 'retaliatory' taxes on inbound foreign investment. As the bill now awaits Senate consideration, there are growing concerns that some of the most sweeping changes to the tax treatment of foreign capital in the US in decades could lead to a sharp reduction in foreign investment in American assets. In this explainer, the Post breaks down some key points in Section 899, including which countries are targeted, and its potential impact on US assets. What is Section 899? Titled 'Enforcement of remedies against unfair foreign taxes', Section 899 is a new provision that targets investments by countries that have 'discriminatory and extraterritorial taxes' on US businesses. Taxes that have been named include the digital-services taxes, diverted-profits tax, and undertaxed-profits rules. Governments, corporations, private foundations or individuals from these countries will be charged an additional 5 percentage points of withholding tax rate each year on their US income, potentially taking the rate up to 20 per cent, until the 'unfair tax' is removed. Echoing the spirit of the 'Mar-a-Lago Accord' , Section 899 reflects Washington's increasing readiness to leverage US dominance in the global capital market to confront what it views as the unfair treatment of American businesses abroad.
South China Morning Post
04-06-2025
- Business
- South China Morning Post
‘Big, scary moment'? What's up with Section 899 and its ‘retaliatory' taxes?
With the market taking a closer look at the 'One Big Beautiful Bill Act' after it was narrowly passed by the US House of Representatives on May 22, a clause called Section 899 has caught the attention of investors worldwide by including a new set of 'retaliatory' taxes on inbound foreign investment. As the bill now awaits Senate consideration, there are growing concerns that some of the most sweeping changes to the tax treatment of foreign capital in the US in decades could lead to a sharp reduction in foreign investment in American assets. In this explainer, the Post breaks down some key points in Section 899, including which countries are targeted, and its potential impact on US assets. What is Section 899? Titled 'Enforcement of remedies against unfair foreign taxes', Section 899 is a new provision that targets investments by countries that have 'discriminatory and extraterritorial taxes' on US businesses. Taxes that have been named include the digital-services taxes, diverted-profits tax, and undertaxed-profits rules. Governments, corporations, private foundations or individuals from these countries will be charged an additional 5 percentage points of withholding tax rate each year on their US income, potentially taking the rate up to 20 per cent, until the 'unfair tax' is removed. Echoing the spirit of the 'Mar-a-Lago Accord' , Section 899 reflects Washington's increasing readiness to leverage US dominance in the global capital market to confront what it views as the unfair treatment of American businesses abroad. 03:01 US appeals court allows Donald Trump's tariffs to stay in effect US appeals court allows Donald Trump's tariffs to stay in effect Which countries will be targeted? Measures in Section 899 could take effect as soon as January 1 if the bill is enacted by October 3, according to an analysis of its key tax proposals by multinational law firm Skadden.
Jordan Times
12-05-2025
- Business
- Jordan Times
A Mar-a-Lago accord could break the dollar
PRINCETON – According to US President Donald Trump and his advisers, the international monetary system is broken and works to the disadvantage of Americans. A radical reform is required, and it can probably come only from a highly disruptive reordering of the world. We have been here before. In 1944, the United States hosted the 44-country Bretton Woods conference, which charted a course out of the dysfunctional order of the interwar period. Now, US Treasury Secretary Scott Bessent regularly conjures the image of a new Bretton Woods moment. The goal would be to deliver a 'Mar-a-Lago Accord' that addresses three overlapping, interconnected problems that are not typically lumped together, because they are the business of separate agencies and separate international institutions. The first concerns trade: how to stop the loss of American jobs and livelihoods. The second concerns money: the dollar's centrality in the global system leaves it overvalued, which makes American exports too expensive. And the third concerns security: the US bears the burden of defending other countries. The Trump administration's conceit is that US trade and security policies can be used to force others to orchestrate a depreciation of the dollar without destroying its reserve status. The idea of a Mar-a-Lago Accord draws directly on previous occasions when the US took steps to reinvent the international monetary system and bring down the value of the dollar. The most obvious reference point is the December 1971 Smithsonian Agreement, which President Richard Nixon proclaimed was 'the most significant monetary agreement in the history of the world.' Another precedent is the September 1985 Plaza Accord under President Ronald Reagan, which probably is the inspiration for the Trump administration's effort. In both cases, a US president believed that the dollar was overvalued, that American exporters and workers were disadvantaged, and that US economic policy had been blocked by foreign obstruction. This sense of entrapment created an impetus for radical disruption. Nixon famously concluded that America could force a necessary change if he came across as a madman. His treasury secretary, the larger-than-life Texan John Connally, famously told Europeans: 'the dollar is our currency, but it's your problem.' In each case, the stick with which to beat other countries was trade policy. In 1971, with the dollar's convertibility into gold suspended, Nixon imposed a 10% surcharge on all imports (the same minimum tariff that Trump announced on April 2). Similarly, in 1985, congressional demands to stem the flood of imports (largely from Japan) gave Treasury Secretary James Baker what he needed to force the rest of the then-G5 developed economies to depreciate their currencies. Bessent is channeling Connally and Baker when he tells reporters that the current tariffs are meant to push other countries toward a new deal. Supposedly, 75 governments are willing to negotiate, and 15 have already proposed a deal. The whole world, Trump claims, is 'kissing my ass.' But neither the Smithsonian Agreement nor the Plaza Accord lasted very long. The Smithsonian parities didn't stick, largely because the US continued a big fiscal expansion that sucked in more imports. Then, when the Europeans, followed by the rest of the world, moved away from fixed exchange rates in 1973, the dollar needed to be depreciated by much more. Similarly, the Plaza Accord was quickly succeeded by the 1987 Louvre Accord, which aimed to stabilize exchange rates; but disputes about how to achieve this goal triggered a major international stock market panic that October. This history augurs poorly for a modern accord. Worse, Trump and many around him genuinely seem to believe that tariffs will raise the revenue they need to make room for the tax cuts they crave. By this reasoning, tariffs cannot be just a negotiating tool; they would have to become a permanent reality. All the talk of a Mar-a-Lago Accord stems from an influential – and now notorious – November 2024 paper by Stephen Miran, 'A User's Guide to Restructuring the Global Trading System,' which probably won him his post as chair of the White House Council of Economic Advisers. After warning about shocks to the real-estate market and the federal budget from rising long-term yields, Miran proposed his grand solution: The US should use its security guarantees as leverage over countries holding dollar assets. This, too, has historical precedents. In the 1960s, the US made it clear to West Germany that its defense against the Soviet threat was contingent on German accommodation of US monetary goals. The same logic had also been applied during the interwar period, when Britain and France, the giants of nineteenth-century finance, held substantial gold reserves. The British and the French encouraged countries on the periphery, especially in central and eastern Europe, to hold a large part of their reserves in British and French short-term deposits and Treasury bills in exchange for security guarantees. But by the 1930s, these smaller states knew that this arrangement was not working, and insisted on holding only gold. Today, it is not only China, Russia, and Turkey that are pumping up their gold reserves; so, too, are those European states that were so vulnerable during the interwar period: Czechia, Hungary, and Poland. The risk inherent in a Mar-a-Lago Accord is that the weaponisation of trade and US security assurances to weaken the dollar will destroy confidence in the greenback. An effort supposedly to defend American workers will overshoot, necessitating a new international currency agreement, but with the US no longer commanding the credibility to supply it. We already know that the Smithsonian Agreement and the Plaza Accord brought little long-term relief to US workers. An attempt to replicate them would be ineffective, and possibly wholly destructive. Harold James is Professor of History and International Affairs at Princeton University. A specialist on German economic history and on globalization, he is a co-author of The Euro and The Battle of Ideas, and the author of The Creation and Destruction of Value: The Globalization Cycle, Krupp: A History of the Legendary German Firm, Making the European Monetary Union, The War of Words, and, most recently, Seven Crashes: The Economic Crises That Shaped Globalization (Yale University Press, 2023). Copyright: Project Syndicate, 2025.
