The Triffin Curse: Trump's 2-Step Master Plan to Reset Global Finance

While Irish media obsesses over shamrocks, a financial revolution is brewing in Palm Beach—here's what they're missing

Happy St. Patrick's weekend in advance, 1215 Tribes readers.

Irish media coverage on Trump 2.0 has been a lamentable mix of personal bile, alarm, and Dail bar-type advice on the bowl of shamrocks called into the Planters House.

This includes Leo Varadkar’s contribution in the last Sunday Times edition.

There’s been little Irish analysis on Trump’s strategy. Without this analysis, there’s no real understanding or chance of developing an Irish counterstrategy.

If the current Taoiseach flies to Washington thinking Irish pearl-clutching analysis is enough, he’ll miss the chance to make a real connection and build a new bridge to Europe.

Here’s why.

Fear is Driving Trump 2.0

Trump 2.0 is driven by fear of the ‘Triffin Curse’ unless the USA takes major corrective action.

This doesn’t mean deserting its lead role, but forcing burden sharing on major trading partners, possibly in a two-step process.

Trump can’t publicly admit it, but he’s concerned about the USA maintaining the dollar as the world’s reserve currency without the Colossus descending into insolvency. There’s no sign of this yet, which would show in sharply rising US Treasury bond yields as credit markets suss out the same fear, but the centerpiece of the strategy is to avoid a Triffin train wreck.

A visit to the US Debt Clock (https://www.usdebtclock.org/) highlights the Achilles Heel of the Colossus.

The longer the current trajectory is maintained without a major shift, the greater the risk of the Triffin Curse unfolding.

Economist Robert Triffin (October 5th, 1911 - February 23rd, 1993) rattles Trump.

Triffin had criticised Bretton Woods fixed exchange rates and predicted the collapse of the US Dollar’s gold convertibility due to the excess of dollars externally over Treasury gold reserves.

He was bang on. On August 15th, 1971, President Nixon binned dollar convertibility to gold. Leaving aside personalities, the hard logic is that, from a White House perspective, Trump is behaving rationally. He is correct in seeking this objective even if opaque.

The rest of us have a clear stake in his attempt, even if the journey is queasy and the pace causes anxieties.

The Triffin Curse

Named after Belgian-American economist Robert Triffin, this describes an elemental tension facing any nation whose currency serves as the world reserve currency.

Although Triffin’s hypothesis arose during the 1960s under the Bretton Woods system, when the dollar was tied to gold, his principles remain in the fiat currency world and are especially charged at a time of highly elevated national and internal debt linked to social undertakings on health and pensions, for example.

These stalk Europe as populations decline and age, but the USA is also stalked by a chronic disease burden linked to sub-optimal public health, from twin opioid and obesity crises, the latter caused by processed foods and the power dynamics of the corporate capture that marks out the USA.

Triffin’s tensions arise from the tension between US domestic economic needs and international obligations.

As the issuer of the global reserve currency, the US must supply the world with sufficient dollars to lubricate international trade, but this can cause persistent trade deficits because other countries accumulate dollars by exporting more to the US than they import.

To make matters worse, globalisation expanded demand for the dollar but boosted the financialised sectors, bonds, derivatives, speculation and debt dependency at the expense of manufacturing, agriculture and mining—the resources economy.

Trump sees a USA that has become enfeebled.

‘Make America Great Again’ has resonated because that’s what Trump’s supporters see in front of their eyes when they drive around their locality.

Wealth creation has become a matter of investing in digitalised assets, not in US steel, resources and local food.

Small businesses are hollowed out and absorbed by fund behemoths; everything is for sale and commoditised for trading on Wall Street.

When deficits build off a low debt/GDP base, Triffin stays as a matter of debate for academics, but with the USA at post-WWII levels, it manifests itself as a clear and present danger, upon which Musk has been particularly vocal.

This, I suspect, is how Trump also sees it and grasps that the deficits will ultimately destroy confidence in the dollar.

His administration, I think, is treading a narrow path between unpleasant choices.

If the US floods the world with dollars, it devalues its currency through inflation and loses trust from foreign buyers.

On the other hand, if the US reduces its deficits to stabilise the dollar at home by raising rates or cutting spending, it restricts the global supply of dollars, damaging international trade and global economic growth, starting a vortex that can quickly descend into real structural harm.

What is the Trump 2.0 Strategy?

Trump may be using tariffs apace to force trading partners into a global accord, for which there is precedent, to devalue the US dollar, thus making the USA industrially competitive abroad and addressing trade deficits, albeit at the price of the growth pathway of other nations, compelled to the negotiation table to burden-share as Trump sees it.

In doing so, he will reset US military cover to those that comply in a much-changed Pax Americana.

The Trump shock may be to deliver the first step in a two-step process by way of lightning moves on tariffs to its trading partners and, after a painful reality check, segue to step two: a call for a reset of the currency system, somewhere between a narrow Plaza Accord (New York, 1985) and a broad Bretton Woods agreement (New Hampshire, 1944).

Trump’s accord, if there is going to be one, is likely to be in Palm Springs, Florida.

Trump, I expect, eyes tariffs—a hark back to mercantile international politics—as a fast track to a dollar reset, but he masks it under a grievance of unfairness.

He wants to compress US trade deficits by making goods and services from outside the USA uncompetitive within it and so supercharge domestic production.

This deficit diminution reduces Triffin tension because it lowers the compulsion to excessively supply dollars externally.

It is, however, a dangerously fine line because it risks domestic inflation as tariffs are passed through to US consumers.

Triffin, in a pre-globalisation age, didn’t imagine that US national security could be threatened by broken supply lines for vital military resources, from chips to steel, but Covid lockdowns changed the calculus for everybody, including the USA.

This is also driving the agenda in parallel with protecting the currency; both are connected.

Tariffs, while boosting the US internal economy, have the benefit of rebalancing world trade away from its reliance on US consumers, stemming Triffin tension further and gradually reducing reliance on the Dollar as the reserve currency.

The big challenge is that the success of Trump’s implicit strategy relies on finesse in carrying it out.

That means ideally relying on multilateral agreements, not lightning unilateral actions.

Conclusion

Notwithstanding Trump’s foibles, he is a rational actor with a clear objective, and treating him as some kind of derangement is a monumental blunder.

So far, none of the trading partners, including Ireland, has done much more than clutch pearls and rattle sabres. This is the wrong approach, in my opinion.

The world needs to address the needs of the USA if it is going to sustain itself both as a superpower and as the supplier of the reserve currency.

There is no other contender.

The Trump administration is moving apace through the gears of its first 100 days, unbalancing opponents but knowing that gravity and opposition will eventually set in.

The drama is feedstock for financial market volatility until the new macroeconomic and geopolitical normal reveals itself.

Meanwhile, diplomats would be best advised to address the underlying fear and motive that appears to be driving Trump, as this offers the best route to reaching agreements for a world he is determined to change.

If you’d like to go into more detail or undertake an overall strategic review, you can contact my financial firm Hobbs Financial Practice Ltd at +353 (45) 409354 or eddie@eddiehobbs.com.

Until next time,

Eddie