John Rubino is a former Wall Street financial analyst and author or co-author of five books, including The Money Bubble: What to Do Before It Pops and Clean Money: Picking Winners in the Green-Tech Boom. He founded the popular financial website DollarCollapse.com in 2004, sold it in 2022, and now publishes John Rubino’s Substack newsletter.
Last week, the Fed started easing again, with a quarter-point cut in its overnight lending rate and a promise of more to come.
(CNBC) – U.S. Treasury yields rose on Friday as investors weighed the state of the U.S. economy and future monetary policy after the Federal Reserve on Wednesday cut interest rates for the first time this year.
What if the Fed Keeps Cutting and Long-Term Interest Rates Keep Rising?
That’s what happened last September, when the Fed cut its overnight rate and long-term yields jumped. If it goes that way again, we can infer three things:
Bond investors — i.e., the people who lend money for 10, 20, or 30 years — expect lower short-term rates to lead to higher inflation, so they’re demanding a higher return to offset the depreciating currency. And since long-term rates determine future economic activity, rising bond yields actually mean tighter money and slower growth. In other words, the Fed is getting the opposite of what it wants.
If the bond market continues to defy the monetary authorities, those authorities will have to escalate to policies that directly target long-term rates. The general term for this is “yield curve control,” because it’s designed to push down long rates relative to short rates, flattening the yield curve and (in theory) making lenders more willing to lend for extended periods.
Suppressing long-term interest rates shifts market skepticism from bonds to the currency, as rising inflation erodes the dollar’s value.
Is a Cheaper Dollar the Objective?
For those unfamiliar with the “Mar-a-Lago Accord,” here’s a primer:
(Investing News Network) – US President Donald Trump’s economic policies and vision for trade have reignited speculation about a potential multinational deal aimed at addressing what some view as a persistently overvalued dollar.
Although no formal agreement has been announced, analysts have coined the term “Mar-a-Lago Accord” to describe a possible effort to rebalance global currency markets, borrowing from the 1985 Plaza Accord.
Origins of the Mar-a-Lago Accord
The phrase has gained traction following the release of a November 2024 paper written by Stephen Miran, Trump’s nominee for the White House Council of Economic Advisers. In it, Miran proposes several strategies to reform global trade and counteract the economic imbalances caused by what he calls an excessively strong dollar.
Similarly, prior to assuming his position as Secretary of the Treasury, Scott Bessent suggested in June 2024 that a “grand economic reordering” could take place in the coming years.
While details remain speculative, the general premise behind the Mar-a-Lago Accord revolves around Trump’s commitment to boosting American manufacturing and exports. The challenge lies in the dollar’s current strength, which makes US goods less competitive abroad. With the US trade deficit reaching a record US$1.2 trillion in 2024, some economists argue that a weaker dollar could help bridge the gap by making American exports more attractive.
The idea of a coordinated effort to weaken the dollar is not new.
In 1985, the US and key trading partners — including Japan, France, the UK and West Germany — agreed to the Plaza Accord, a deal aimed at curbing the dollar’s strength. At the time, US manufacturers were struggling against Japan’s export dominance, much like today’s concerns regarding China.
The Plaza Accord succeeded in lowering the dollar’s value, but it also had unintended consequences, such as Japan’s economic stagnation in the 1990s.
Potential mechanisms of a Mar-a-Lago Accord
If such an agreement were to take shape, it could involve several key components.
Trade and tariff adjustments could be central, as Trump has floated the idea of replacing the Internal Revenue Service with an “External Revenue Service” that collects funds from foreign countries.
This indicates a shift toward economic policies that could pressure trading partners into compliance.
What does the Mar-a-Lago Accord mean for gold?
One of the most consistent takeaways from Mar-a-Lago Accord discussions is its bullish implications for gold.
A weaker dollar historically drives demand for gold as a store of value, and uncertainty surrounding US debt policies could further boost the metal’s appeal. Every single one of these proposals is gold bullish.
Now Watch the Dollar and Gold
As “Mar-a-Lago” policies are enacted, the dollar’s exchange rate has been falling versus other currencies:
Meanwhile, gold just achieved not just an all-time nominal high, but an all-time inflation-adjusted high:
So it’s not chaos after all. There’s a plan, and it’s great for gold (and silver). Keep stacking.
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