Is the U.S. investment safe haven looking less safe?

Summary

Marketplace Morning Report: Is the U.S. Investment Safe Haven Looking Less Safe?

Release Date: May 15, 2025
Host: David Brancaccio
Podcast: Marketplace Morning Report

In the latest episode of Marketplace Morning Report, host David Brancaccio delves into a pressing question facing global investors: Is the United States still the reliable safe haven it has long been considered? Amidst evolving economic policies and increasing government debt, this episode explores the shifting dynamics of international investments and the potential repercussions for the U.S. economy.

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1. Shifting Perspectives on the U.S. as a Safe Haven

David Brancaccio opens the discussion by highlighting concerns about mounting U.S. government debt and investors' faith in American stability. As Congress grapples with spending cuts and tax reforms, foreign investors are reconsidering their investment strategies. A recent report from Nikkei Asia underscores this trend, noting a significant $50 billion influx into Japanese stocks and bonds in April alone, marking a historic peak.

Charles Litchfield of the Atlantic Council provides valuable insights into this shift:

"While the US is still considered by most global investors as a safe haven, for many it's looking a lot less safe than it used to," (01:42) Litchfield explains.

This sentiment is echoed by Gillian Tett, a columnist for the Financial Times, who observes a declining interest in dollar-denominated assets:

"There's less interest in dollar denominated assets and especially a desire by big, big investors like central banks and sovereign wealth funds to get out of dollar denominated assets to an extent, and into others," (01:53) Tett comments.

2. Diversification of Global Investments

As confidence in the U.S. as a safe investment fades, global investors are exploring alternative stable economies. Litchfield notes:

"So they're looking around the globe for other big stable economies where they can park their cash," (02:07) he states.

Gillian Tett highlights Japan as a key beneficiary of this trend:

"And the Japanese yen and yen denominated assets are now comparatively more attractive," (02:13) Tett says.

Charles Bustani, a senior advisor at the National Bureau of Asian Research, adds that Japan is not the sole recipient of this investment shift, with Europe, particularly the German market, also experiencing increased inflows:

"Global investors are looking at markets in Europe. The German market, for instance, has seen an uptick in investment," (02:29) Brancaccio reports.

Litchfield anticipates that this pattern will persist until the U.S. can offer more predictable economic policies:

"He expects that will continue until economic policy in the US becomes a bit more predictable," (02:38) he concludes.

3. The USD's Waning Dominance and Policy Implications

A core concern among financial experts is whether the Trump administration possesses a deliberate strategy to weaken the U.S. dollar—a notion colloquially referred to as the "Mar-a-Lago Accords." To shed light on this, Brancaccio engages Gillian Tett in a detailed conversation.

When questioned about the existence of a formal plan to devalue the dollar, Tett responds:

"I think it's an exaggeration to say that the Trump team have some secret master plan or manual which they are essentially rolling out and operating to," (03:45) she clarifies. However, she acknowledges that influential figures within the administration envision restructuring the global financial system:

"They want to reorder the global financial and trading system to cut the trade deficit... they're also questioning whether having constant dollar strength is a good thing or not," (03:45) Tett explains.

Brancaccio raises the point that despite tariffs being potentially inflationary—which should theoretically strengthen the dollar—observations indicate an opposite trend:

"The dollar have been weakening anyway," (04:39) Tett asserts, attributing this to market reactions based on administration statements rather than explicit policy moves.

The fluctuating stance on dollar strength has bred uncertainty among international investors:

"The very fact we've had these flip flops in policy... is causing many investors outside America to get pretty nervous about holding American assets in general because they just don't feel they can trust where policymaking is going in the future," (05:02) Tett notes.

4. Consequences of Losing Reserve Currency Status

The implications of a weakened U.S. dollar extend beyond currency values. Tett elaborates on the critical role of the dollar as the world's reserve currency:

"Having a reserve currency is the very fact that everyone has to buy the dollar means that money comes into America, they buy lots of American debt, and that keeps the interest rate that's set in the markets according to investor supply and demand," (05:50) she explains.

Should the U.S. lose its reserve currency status, the country could face soaring interest rates:

"If America was ever to lose its status as reserve currency, one thing you would be able to predict is that interest rates in the markets would go up," (05:50) Tett warns. This scenario would have far-reaching effects, including higher costs for mortgages, credit cards, and overall consumer borrowing.

5. Current Market Indicators and Future Outlook

Transitioning to current market conditions, Brancaccio provides an update on recent trends:

"Checking markets after mixed results yesterday this morning, the indexes are all red, not green. S and p futures are down 5, 10%. Nasdaq futures are now down 7. 10%. Dow futures are down about 157.4%. The benchmark interest rate governing a lot of consumer borrowing, that's the 10-year yield hasn't been this high since mid-February. 4.51%," (08:29) he reports.

This uptick in yields signifies increased borrowing costs, aligning with the discussed concerns about rising interest rates if the dollar's dominance diminishes.

6. Broader Implications and Listener Takeaways

The episode underscores the interconnectedness of global financial systems and the delicate balance the U.S. must maintain to preserve its economic standing. As foreign investors diversify their portfolios away from U.S. assets, the ramifications could ripple through various facets of the American economy, from consumer costs to the nation's geopolitical influence.

Listeners are encouraged to stay informed about these evolving dynamics, as shifts in investment patterns and currency valuations could have tangible impacts on everyday financial decisions and the broader economic landscape.

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For a deeper dive into the topics discussed, including Gillian Tett's online tutorial on the U.S. dollar's reserve status, visit Marketplace Online.

Transcript

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[David Brancaccio]

You can turn to Marketplace to hear from powerful leaders and everyday people about the economy and their roles in it. Now we hope we can turn to you. Marketplace is facing real threats and challenges as we plan for the future. As a public media program, donations from you are an important part of our budget. Here's one action you can take right now that will have a long lasting start a monthly donation to Support our work. $5 a month is a great place to start. Head to marketplace.org donate and thank you. I'm taking my ball and going home. What if foreign investors in the US Said that? I'm David Brancaccio in Los Angeles. With Congress struggling to find spending cuts to offset its evolving plans for a tax cut, there's always the concern about mounting government debt. Investors here and abroad buy that debt and what would happen if they were to take their investments elsewhere. Amid all the policy uncertain, a report from Nikkei Asia finds that during the month the US Raised tariffs sharply. That's April. More foreign money flowed into Japanese stocks and bonds than ever before, about $50 billion worth. Japan Marketplace's Kimberly Adams explains why.

[Charles Litchfield]

While the US is still considered by most global investors as a safe haven, for many it's looking a lot less safe than it used to, says Charles Litchfield at the Atlantic Council.

[Gillian Tett]

There's less interest in dollar denominated assets and especially a desire by big, big investors like central banks and sovereign wealth funds to get out of dollar denominated assets to an extent, and into others.

[Charles Litchfield]

So they're looking around the globe for other big stable economies where they can park their cash.

[Gillian Tett]

And the Japanese yen and yen denominated assets are now comparatively more attractive.

[Charles Litchfield]

But Japan isn't the only place seeing a boost in investment due to Trump's tariff policies. Charles Bustani is a senior advisor at the National Bureau of Asian Research.

[David Brancaccio]

Global investors are looking at markets in Europe. The German market, for instance, has seen an uptick in investment. There are other markets as well, and.

[Charles Litchfield]

He expects that will continue until economic policy in the US Becomes a bit more predictable. In Washington, I'm Kimberly Adams for Marketplace.

[David Brancaccio]

Now to a related obsession of players in the financial world. Wall street and others want to know if the Trump administration really has an actual plan to weaken the US Dollar. A weaker dollar might chase more investment money elsewhere, which could push U.S. interest rates higher. But a weaker dollar would also make US Products cheaper and therefore easier to sell overseas and imports less attractive, helping US Jobs potentially. But is there an actual plan to weaken the dollar, something people have taken to call a Lago accord, if such a thing even exists. Let's bring in Gillian Tett, a Financial Times columnist. Welcome.

[Gillian Tett]

I'm delighted to be talking with you.

[David Brancaccio]

There's been talk that there's, like, maybe a single document that would set out this idea of weakening the US Dollar as a general principle. Some called it the Mar a Lago Accords. Are you a believer that there's actual, like a document bound in fine leather, that if we could just open it up, we'd really understand what's going on?

[Gillian Tett]

Well, I think it's an exaggeration to say that the Trump team have some secret master plan or manual which they are essentially rolling out and operating to. But there are people around him who definitely have a vision for how they'd like to reorder the global financial and economic system. And if you tie together the statements from many other people, you see a pattern, which is that, firstly, they want to reorder the global financial and trading system to cut the trade deficit. They want to keep the dollar as a reserve currency because they know that's a source of a lot of their geopolitical power. But they're also questioning whether having constant dollar strength is a good thing or not. And the thing to realize is that, ironically, the very fact they've been talking about all this means that actually, without actually doing anything, the dollar have been weakening anyway.

[David Brancaccio]

Yes. I mean, if you look back at the dollar versus a basket of currencies this year, it's down. However, tariffs can be inflationary, economists tell us, and if we look forward in the coming weeks and months, we may see more inflation in the US which would have the effect of raising the strength of the dollar. And that would go counter to this whole idea.

[Gillian Tett]

And the fact it hasn't strengthened, is actually weakened in said suggest two things. Firstly, some traders and economists are taking what the administration has been saying about not liking a strong dollar very seriously and essentially doing, if you like, the market's dirty work for it by simply selling off the dollar ahead of time. But the very fact we've had these flip flops in policy. And these dramatic changes in the policy regime is causing many investors outside America to get pretty nervous about holding American assets in general because they just don't feel they can trust where policymaking is going in the future.

[David Brancaccio]

Wait, that's money. That's financing my lifestyle here, you know? Right. I mean, they're buying the debt so that I don't have to pay such high taxes?

[Gillian Tett]

Well, absolutely, because one of the important things to realize about having a reserve currency is the very fact that everyone has to buy the dollar means that money comes into America, they buy lots of American debt, and that keeps the interest rate that's set in the markets according to investor supply and demand. That keeps the interest rate low, unusually low, because in most countries in the world, if you had debt as big as America has today, you'd have a much, much higher level of interest rate in the markets because investors would demand compensation for taking the risk that you might default. So if America was ever to lose its status as reserve currency, one thing you would be able to predict is that interest rates in the markets would go up. And that of course would affect the price of mortgages and credit card borrowing and things like that.

[David Brancaccio]

Why we're talking about this Gillian Tett, Financial Times columnist on the FT's editorial board. Thank you very much.

[Gillian Tett]

Thank you very much indeed.

[David Brancaccio]

As well, Gillian also gave us a helpful tutorial on why we should care if the US remains the world's reserve currency. It's called if you missed it on the air. That part of our conversation is now streamable from Marketplace Online.

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[David Brancaccio]

Checking markets after mixed results yesterday this morning, the indexes are all red, not green. S and p futures are down 5, 10%. Nasdaq futures are now down 7. 10%. Dow futures are down about 157.4%. The benchmark interest rate governing a lot of consumer borrowing, that's the 10 year yield hasn't been this high since mid February. 4.51%. Now, two days ago I told a friend about a show on Max. I mean, you know, hbo. HBO Max. Its owner, Warner Brothers Discovery has now fixed the issue for us. The name is going back to HBO Max. If only we could get Meta to go back to Facebook or, or Google was first called backrub. I looked it up. I'm David Brancaccio. Marketplace Morning report from APM American Public Media.

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[Marie Mejres]

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