The U.S. has a spending problem and everyone knows it. Moody’s, the last of the three rating agencies maintaining a AAA rating on U.S. sovereign debt just issued a warning: The outlook is now negative as “Moody’s expects the country’s deficits to remain huge and expensive”. The nation’s debt ceiling will hit sometime this summer unless Congress passes the first Balanced Budget in some 30 years or votes to increase the debt ceiling. Congress will start working on the Budget and Debt Ceiling in early April, but Republicans are divided on spending cuts and increasing the Debt Ceiling—and Democrats have stated they will vote No on everything— all of which validates Moody’s warning. The clock is ticking!
President Trump’s administration (with some very smart and serious individuals) sounds like they have a Plan but have not formally presented a comprehensive one. They have, however, discussed what their goals are—and connecting the dots you get a picture that looks like a Plan focused on 3 planks: (1) rebuilding the hallowed out Middle Class, (2) saving the US dollar’s reserve currency status, and (3) rebuilding the infrastructure essential for national security.
Drilling down further, the Plan would require an organized and orderly devaluation of the US dollar to re-engineer international trade (making US exports much more competitive) and to bring back critical manufacturing to the US (factories and infrastructure required to be self-sufficient and essential for national security) along with good paying jobs for the Middle Class. A study of history shows that this Plan is like what President Reagan did in the 1985 Plazza Accord where tariffs were used to induce our trading partners to devalue the US dollar to have a fairer international trading system. In fact, some financial experts are now calling the informal Trump Plan the Mar-a-Lago Accord.
Speaking of tariffs and history, we also see that President Nixon used tariffs to induce global trading partners to accept his taking of the US dollar off the Gold Standard in 1971, making the dollar a fiat currency where the holder had to rely only on the full faith and credit of the US government.
Make no mistake, the Mar-a-Lago Accord is a very broad and complicated plan where a lot could go wrong. In fact, even President Trump said there would be “some pain” in the transition— but you can see his focus on helping the Middle Class with making social security and overtime tax free along with restoring the 2017 tax cuts. Having said that, there are now more and more financial experts that are saying “Hhhmm, this could work, and who better than Trump to make a deal!” Time is of the essence!
Steve Gardes is a Certified Public Accountant (CPA) and Certified Valuation Analyst (CVA) with over 40 years of public accounting experience.
