Is Trump the last straw for the dollar system?

Will US President Donald Trump be the tipping point for the dollar system? Even Western financial outlets now warn of the beginning of the end of dollar dominance.

To discuss in this episode of Geopolitical Economy Hour, political economist Radhika Desai is joined by economist Michael Hudson and economic geographer Mick Dunford.

You can find more episodes of Geopolitical Economy Hour here.

Introduction

RADHIKA DESAI: Will Trump prove to be the tipping point for the dollar system?

As regular viewers of Geopolitical Economy Hour will know, we have done many programmes on the dollar’s shaky basis, and on how and why we can expect its role as world money to unravel.

Now, suddenly, the Western press is full of forebodings of the demise of the dollar. The Financial Times alone, normally a loyal proponent of the wonders of the dollar system, has published a series of stories, each marshalling a different reason for the dollar system’s possibly imminent demise — over a dozen in April alone.

So let me start us off with the following observations: What is interesting is how much these recent stories attribute to Trump the dollar system’s possible demise – evidenced by the simultaneous sell-off of US stocks, bonds, and dollars, which is surprising given that the latter two are generally considered “safe haven” assets which are bought when there is a sell-off of riskier assets like stocks.

But is it really about Trump, or about the longer term currents which Trump may only be accelerating?

Much attention has focussed on Trump and his administration’s threat to fire the chairman of the Federal Reserve Board, Jerome Powell. This included the US president’s Truth Social post calling Powell a “loser” and insisting on lower interest rates forthwith.

This was the latest straw on the already groaning back of the USD camel — raising fears that the replacement of Powell, a known quantity, would give markets a fright.

More broadly, the same commentator also pointed out, “What many foreigners are inferring from Trump’s getting elected twice is that America itself cannot be trusted or relied upon”.

Japanese and Chinese investors were quoted as saying that US “asset credibility” was slipping, and that the dollar and US treasuries, normally regarded as safe-haven assets, were now being regarded as risk assets.

In April, FT reporter Robin Wigglesworth and his colleagues were asking, “Is the world losing faith in the almighty US dollar?”, focussing largely on how the world has been dumping dollar assets: equities and bonds — when normally investors dump one to buy the other — as well as the dollar, which is normally expected to rise amid crises, thanks to its haven status.

The reason? Well, it’s all about trust and friendship, or in this case, distrust and resentment.

The authors quoted a US finance representative:

It’s not just that you can’t trust the US any more, be it on geopolitics or trade… We have also managed to massively piss off the rest of the world. There’s genuine, personal animosity towards us, and that hurts the dollar.

Meanwhile, on the other side of the pond, Bloomberg has published a story on how two months of Trump has shaken “the pillars of American financial hegemony”.

Bloomberg wrote that, with trade war and attacks on the Federal Reserve, Trump has sent investors who, until recently had been “anticipating a so-called Trump trade, essentially turbocharging US exceptionalism, but now it looks more like a sell-America trade”.

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