What the Hell is the Mar-a-Lago Accord

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You cannot scroll FinTwit accounts on X these days without seeing something about a so-called Mar-a-Lago Accord. Conspiracy theories abound, of course. For some it’s Trump’s secret and genius plan for restructuring the global financial order. For others it’s the corrupt plan of Trump and his cronies to extract maximum benefits from a second go at world power. 

In truth, it’s neither. 

At this point, it’s not much more than an elegant financial idea but it’s important and something we should all be paying attention to. 

A little health warning: this is complicated stuff and difficult to coherently explain but I’ll do my best! Forgive me if I make a few mistakes and grossly oversimplify a lot of very complex subjects.

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To understand the idea, we have to back-up and cover some history. At the end of the last great war, the victors architected a new global financial order based upon a simple idea: the United States would provide a security guarantee for all free nations, and in exchange for bearing this risk and cost:

1. The US Dollar would be the world’s reserve currency

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2. Free foreign governments and banks would hold US Treasuries as their main form of collateral. 

Now, we didn’t agree to this just because we are the most benevolent and magnanimous superpower in history (though we are); we agreed to it because it gave us a tremendous financial strategic advantage. 

You see, normally what happens to countries that develop large fiscal and trade imbalances is that their currencies get destroyed. Businesses and investors get spooked and start looking for safer places to put their money (i.e. classic capital flight). Sooner or later, a nasty bout of inflation sets in that wreaks havoc on the economy and standards of living. If you are looking for a good modern example of this, consider Turkey or Venezuela:

While we have been just as bad as any country when it comes to running fiscal and trade deficits:

We have been able to avoid the fate of countries like Turkey or Venezuela. How?

Well, the subtle implication of the post-war financial structure is that there is permanent structural demand for US Dollars. Everyone is always needing dollars, dollars and more dollars—whether to facilitate international trade deals or make loans across countries, or as a place to invest excess savings…. As a result, for 80 years the US Dollar has had an artificial floor to its relative value against other currencies—i.e. it has bee higher than it otherwise might/should be.

The system worked massively in our favor for several decades after the war when we were basically the only country left in the world that could produce export goods. But things changed dramatically in the 1970’s and have gotten worse and worse since.

The original America First / MAGA movement was, in large part, a reaction to this phenomenon—theorizing, perhaps correctly, that an artificially high US Dollar was the secret unfair cause of our economic woes. Whatever you make think of this, while a high currency certainly isn’t the only cause for the destruction of the American Middle Class, it has definitely played a role. 

President Trump deserves credit for raising national awareness on this but he’s never done a great job explaining it. While he loves to talk about the political benefits of tariffs, they are best thought of as a unilateral attempt to address our structural currency disadvantage. If the US Dollar cannot properly adjust lower in free currency markets, we can add a little tariff and achieve the same result—or so the theory goes.

There are problems with tariffs though. They hurt American businesses and consumers obviously and in a very direct way—i.e. imports are instantly more expensive. They can be inflationary and cause supply chain uncertainty. And they don’t quite work the same way as true currency depreciation—i.e. a 25% tariff doesn’t result in a 25% improvement in the relative value of American exports. 

After 8-years of experimentation with tariffs, strategic export controls, and incentive programs like the CHIPS Act, some astute policy makers are starting to ask whether seeking a multilateral agreement might be a better approach. There’s a ton of historical precedence for this actually. The whole current structure was famously set-up at the Bretton Woods Conference in 1944 and we’ve seen multilateral action many times since, including the 1986 Plaza Accord which resulted in a coordinated global effort to reduce the value of the US Dollar.

The original idea for the Mar-a-Lago Accord comes from a very astute macroeconomic thinker named Zoltan Poszar. For several years now, Poszar has been writing about what he calls Bretton Woods III, a new monetary order that involves a bi-polar world, a declining US Dollar and the rise of commodity-linked currencies in the East. Late last year, he wrote an article about the idea that got a lot of people thinking, especially those in President Trump’s inner circle. The original article is behind a paywall but Stephan Miran, before he was sworn in to Trump’s White House Council of Economic Advisors, wrote a detailed summary of the idea. 

The big idea of the Mar-a-Lago Accord is that instead of pursuing inefficient unilateral policies (like tariffs), we should simply get together with our free world allies and architect a different and fairer system. The goal is still the same—to make American exports more competitive on the global market—but if our allies are willing to work with us, maybe we can get to the same place faster and without so much geopolitical antagonism and uncertainty. 

It's important to remember that this is as much about geopolitics and the US security guarantee than it is about economics and money. And it’s no secret that President Trump has issues with the security guarantee. He’s been vocal and clear about that since 2016 and has been even more aggressive this time around, intimating even that we might abandon NATO itself, the geopolitical centerpiece of the post-WWII order. Why?

It’s not just about fairness. When we are increasingly fiscally stressed why shouldn’t we ask our NATO allies to step-up a bit? It’s also a matter of pure viability. We have wrecked our fiscal balances in the last few decades and are literally running out of capacity for fiscal deficits, especially in the face of our looming entitlement spending crises. So, something must be done.

Poszar’s grand plan is to change the funding mechanism for the security guarantee. Here’s the quotation from his paper that everyone has been citing:

1. security zones are a public good, and countries on the inside must fund it by buying Treasurys;

2. security zones are a capital good; they are best funded by century bonds, not short-term bills;

3. security zones have barbed wires: unless you swap your bills for bonds, tariffs will keep you out.

Let me translate this into plain English:

We will keep the security guarantee alive but our allies must agree to continue to fund their reserves and banks with our government debt AND we are going to change the rate and term structure of that debt to be more favorable to us (extending out the term to 50-100 years and reducing the rate) AND if you are an ally and don’t comply we will tariff you until you do.

From a practical standpoint what this would do is reduce our borrowing costs, making deficit funded defense spending more palatable, and reduce the constant short-term bid that’s been artificially propping up the US Dollar, giving our exports a chance to be more competitive. 

It’s actually quite an elegant solution. By giving us some immediate financial relief from our rapidly growing debt problem and the benefit of some much-needed currency flexibility to aid our competitive position in the reshuffling global value chain, we just might be able to credibly retain our position as the leader and protector of the free world. If that’s not worth something, what is?

Whether President Trump and his inner circle really understand it or have the diplomatic chops to pull it off remains to be seen. At this point, it’s unclear whether they even want to. But if they did, it would be much better for Americans than the wild tariff game we are playing today. It might even be something that actually makes America great again. 

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