The Tenderest Point of Government

 Every week in the Trump hellscape has its own distinct theme—in which he destroys some new pillar of the global community that previously kept humanity from each other's throats. And obviously this current week is only a few days old at this point; but already it seems that perhaps this week's theme is going to be: the week Trump destroyed the dollar. 

Recent days have already brought disturbing signs that we are witnessing a wholesale capital flight from the United States. Foreign investors are dumping US stocks, bonds, and dollar reserves all at once—a pattern that suggests not only a short-term pessimism about the effects of Trump's tariffs, but something like a complete reordering of the global economy. 

The dollar has therefore continued to slide in value against all other major currencies; reducing our purchasing power on the global stage. At the same time, Trump is amping up his campaign against the Fed's independence. If successful, this would likely increase inflation and undermine confidence in the dollar even further, leading to a runaway spiral. 

Here's how the worst case scenario might go: suppose Trump managed to actually bully the Fed into cutting interest rates prematurely (as he currently seems set on doing). This would itself be inflationary, in a way that would only further exacerbate the price increases that we can expect from Trump's tariffs. They would then have to raise borrowing costs again, making US debt more expensive. 

The result could be hyperinflation and a complete loss of confidence in the validity of US assets abroad. As the Wall Street Journal was warning yesterday—the situation will become even more dire if the administration follows through on threats that some of its senior advisors have made to partially default on the US debt (through charging other countries a premium for debt service that we already owe them). 

In his attempt to blame the Fed for his own policy failures and force them into cutting interest rates, Trump yesterday called the Fed Chair "Mr. Too Late" (implying, in the face of all economic evidence, that Powell somehow missed the moment to lower rates). This is ironic, since Trump himself may be the one who has set a process in motion that he is now too late to forestall. 

I do believe that Trump would probably seek to pull up from his various policy nose-dives if he realizes he is actually about to tank the global economy. He has too many of his own assets tied up in the health of the bond market to do otherwise. That's why we have seen him panic and shift course already, whenever the markets responded too sharply to his ever-shifting tariff plans. 

But this tendency to abort his own policies in mid-mission will not do us any good if Trump has already set a runaway process in motion. Even if Trump later regrets his actions and tries to claw them back, in that scenario, he may be the real "Mr. Too Late." I am reminded of Rossetti's poem: "Look in my face; my name is Might-have-been; / I am also call'd No-more, Too-late, Farewell[.]"

We can kiss the U.S. dollar and the global economy goodbye in that scenario, in other words. If Trump has already irreversibly torpedoed global confidence in our currency and our economic institutions, it may already be "too late" indeed. Farewell!

Destroying a country's currency in this way is no small thing. As Jonathan Swift once put it, in The Drapier's Letters, "It is the tenderest point of government, affecting every individual [...] When the value of money is arbitrary, or unsettled; no man can well be said to have any property at all; nor is any wound so suddenly felt, so hardly cured, or that leaves such deep and lasting scars behind it." 

We have already seen the political effects of a relatively modest and transitory increase of inflation after the pandemic. It changed our entire country's politics. Just imagine what would happen if we now experienced Weimar-style runaway inflation, and the Federal Reserve lost any credibility to contain it, because it had been completely politicized by Trump!

Swift's Drapier's Letters, which I was reading this past weekend (since I was thinking about Trump's latest manipulations to the value of the dollar) may at first strike the modern reader as a tempest in a teapot. Swift was responding to the British government's grant of a patent to mint copper coin. How could anyone stir up so much indignation against something so fundamentally trivial? 

Well, it actually makes sense, once you read the letters. 

Fundamentally, Swift's fear—and the fear of all Ireland at the time—was that the government might force the Irish to accept this "debased coin" at face value—and so exchange their goods, gold, and silver for denominated amounts in the copper currency. As a result, things of intrinsic value would be extracted from Ireland, and things of only nominal value would flow in to replace them. 

The result, as Swift (in his character of the "drapier") points out time and again, could be the complete "ruination" of the kingdom. 

What Swift was really talking about, therefore, is the same thing we are talking about today in this country—namely, the risk of losing our purchasing power. The risk of seeing our currency fundamentally debased and robbed of its value. If Trump really does manage to trigger an inflationary spiral, the dollar could become as worthless as the copper coins of Mr. Wood's patent. 

Everybody has a reason to care about such an outcome. The value of the dollar is an issue "of the greatest concern to yourselves"—as Swift puts it‚ because "your children, your bread and clothing, and every common necessary of life entirely depend upon it." There's a reason the price level was central to the last election. If things keep going this way—it will be even more so in the next one!

But, strangely, even as people realize that this would be a disastrous outcome, they feel completely powerless to forestall it. A Republican senator—who clearly realizes that Trump's trade policies are a disaster—nonetheless confessed himself unable to do anything about it: "I think Congress has willingly given up its constitutional authority to the executive," he reportedly said. 

Swift had a good rejoinder, to this kind of paltry denial of one's own agency, in the face of these threats to the currency: "Some [...] shrug up their shoulders, and cry, ' What would you have us do?'" writes Swift. To which he replies: 

"Will a man, who hears midnight robbers at his door, get out of bed and raise his family for a common defense, and shall a whole kingdom lie in lethargy, while Mr. Wood comes at the head of his confederates to rob them of all they have, to ruin us and our posterity for ever?"

Indeed. So too, today: shall we all see what Trump is doing; shall we all stand here and see it coming: the runaway inflation, the capital flight, the plunging dollar, the loss of confidence in our assets—and will our citizenry and our other branches of government do nothing in response? 

If Senate Republicans are willing to take a stand on anything, surely they should do so now. The value of the currency is indeed, as Swift put it, "the tenderest point of government."