Jim Bianco on What a 'Mar-a-Lago Accord' Could Mean for the Economy

Summary

Odd Lots Podcast Summary: Jim Bianco Explains the 'Mar-a-Lago Accord'

Podcast Information:

• Title: Odd Lots
• Hosts: Joe Weisenthal and Tracy Alloway (Bloomberg)
• Description: Bloomberg's Joe Weisenthal and Tracy Alloway explore the most interesting topics in finance, markets, and economics. Join the conversation every Monday and Thursday.
• Episode: Jim Bianco Explains the 'Mar-a-Lago Accord'
• Release Date: February 25, 2025

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1. Introduction to the Mar-a-Lago Accord

[02:16] Tracy Alloway:
Tracy introduces the episode by addressing the buzz among Wall Street analysts and investors regarding the Mar-a-Lago Accord. This hypothetical agreement is likened to historical monetary accords such as the Bretton Woods Agreement and the Plaza Accord, suggesting a significant shift in the U.S. monetary and economic policies.

[02:22] Joe Weisenthal:
Joe expresses unfamiliarity with Mar-a-Lago, humorously admitting he wasn't aware of its significance, highlighting common perceptions associating it primarily with President Trump and recreational activities like golf.

2. Understanding the Mar-a-Lago Accord

[03:04] Tracy Alloway:
Tracy defines the Mar-a-Lago Accord as a potential new monetary system alignment, inspired by historical precedents but projected to reflect current geopolitical and economic strategies under the Trump administration.

[05:24] Tracy Alloway:
She emphasizes the theoretical nature of the Accord, noting its implications for the global financial system, U.S. economic policies, and the broader international order.

3. Jim Bianco's Insights on the Mar-a-Lago Accord

[05:45] Jim Bianco:
Jim clarifies a historical inaccuracy pointed out by Tracy regarding Trump's acquisition of the Plaza Hotel, setting the stage for a deeper analysis of the Accord's foundations and objectives.

3.1. Theoretical Framework and Objectives

[06:19] Jim Bianco:
Jim explains that upon Trump's presidency, a surge of executive orders signaled a comprehensive plan rather than isolated policy changes. He references a report by Stephen Mirren, former Hudson Bay Capital advisor and current Council of Economic Advisors chairman, highlighting the concept of the Mar-a-Lago Accord as part of a broader strategy to reorder the monetary system.

[08:02] Joe Weisenthal:
Joe queries whether the Accord represents a specific event (a meeting at Mar-a-Lago) or a metaphor for a new global economic direction for the U.S. Jim responds that it's more symbolic of a destination—a new equilibrium in international financial relations.

3.2. The U.S. Dollar: Trade Weighted vs. Dollar Index

[08:34] Jim Bianco:
Jim delves into the distinction between the Trade Weighted Dollar and the Dollar Index (DXY):

• Trade Weighted Dollar: Measures the value of the U.S. dollar against currencies of its major trading partners, weighted by trade volume. It has appreciated by 218% over the last 40 years.
• Dollar Index (DXY): Measures the dollar against a basket of six major currencies, with the euro accounting for 57% of its weighting. It has depreciated by 5% over the same period.

He posits that the strengthening of the trade-weighted dollar has hindered U.S. manufacturing competitiveness by making exports more expensive.

3.3. Addressing Deficits and National Debt

[14:23] Jim Bianco:
Jim links the strengthening dollar to the U.S. trade deficit and national debt. He argues that reducing the trade-weighted dollar requires a reorientation of the financial system, addressing the intertwined issues of debt, deficits, and interest rates. This approach aims to make the U.S. more competitive globally by easing manufacturing constraints.

3.4. Defense Spending and Global Security

[14:23] Jim Bianco:
He discusses the historical context of U.S. defense spending post-World War II, highlighting that European allies previously contributed less than 1% of their GDP to defense while the U.S. bore a significantly larger share. Under Trump's leadership:

• Trump 1.0: Increased European defense contributions to 2% of GDP.
• Trump 2.0: Proposed further increases to 5% of GDP, aiming to alleviate U.S. financial burdens and reduce national debt.

This shift encourages European nations to invest more in their defense, potentially freeing U.S. resources and contributing to the financial stability necessary for the proposed monetary realignment.

3.5. Tariffs and Trade Policies

[14:23] Jim Bianco:
Jim touches upon the role of tariffs within the larger framework of the Mar-a-Lago Accord, indicating that tariffs are integral to managing the trade deficit and influencing the value of the dollar.

3.6. Sovereign Wealth Fund Proposal

[22:14] Tracy Alloway:
Tracy raises questions about the practicality of establishing a Sovereign Wealth Fund (SWF) in the U.S., given its status as a debtor nation without substantial current account surpluses.

[22:19] Joe Weisenthal:
Joe humorously misinterprets SWF but segues back to the economic discussion.

[22:23] Jim Bianco:
Jim elaborates on the SWF concept, noting:

• Current U.S. Assets: The U.S. lacks significant SWFs compared to oil-exporting nations.
• Potential Assets for SWF:
  • Gold Reserves: The U.S. holds 8,100 tons of gold, valued at market prices significantly higher than book value.
  • Bitcoin Holdings: Approximately 207,000 bitcoins acquired by the Justice Department, valued around $11 billion.
  • Real Estate: The federal government owns substantial real estate which could be monetized.

He speculates that the Treasury Secretary might "monetize" these assets, using them to establish a SWF. This fund could serve dual purposes:

• Asset Revaluation: Presenting a more robust asset base to offset national debt.
• Borrowing Mechanism: Leveraging assets to secure additional funding without directly impacting consumer interest rates.

Jim also discusses the potential inclusion of assets like TikTok, emphasizing the speculative nature of such investments and their implications for U.S. financial strategies.

4. Theoretical Implications and Broader Discussions

4.1. Competitiveness of U.S. Manufacturing

[17:03] Tracy Alloway:
Tracy connects the weakening of the dollar to reshoring manufacturing, highlighting the interplay between currency valuation and production costs.

[20:26] Jim Bianco:
Jim clarifies that while currency valuation significantly impacts commodity and standardized manufactured goods, it has less effect on service exports tied to intellectual property and unique U.S. innovations.

4.2. Role of Currency in Export Competitiveness

[21:34] Tracy Alloway:
Tracy emphasizes the importance of the dollar's value in determining the competitiveness of U.S. exports, especially in manufacturing sectors where price sensitivity is high.

[20:26] Jim Bianco:
Jim reinforces that for service-based exports, the dollar's strength is less critical compared to goods where price plays a pivotal role.

4.3. Sovereign Wealth Fund Challenges

[22:14] Tracy Alloway:
She probes further into the feasibility of a SWF in the U.S., questioning how it would function without a traditional surplus-based revenue stream.

[22:23] Jim Bianco:
Jim elucidates potential strategies for establishing a SWF, despite the U.S.'s debtor status, by leveraging undervalued assets and exploring unconventional asset classes like cryptocurrencies.

5. Conclusion and Future Considerations

[26:47] Tracy Alloway:
Tracy reflects on the complexities and potential risks associated with the proposed SWF, expressing concern over the speculative nature of certain proposed assets like Bitcoin.

[27:04] Jim Bianco:
Jim acknowledges the speculative elements but underscores the necessity of reimagining financial strategies to address entrenched economic challenges.

[27:19] Tracy Alloway:
Tracy raises questions about the feasibility of the Mar-a-Lago Accord, particularly regarding the balance between transactional international relationships and maintained trust, especially with NATO allies.

[28:35] Joe Weisenthal:
Joe brings attention to recent geopolitical developments, such as Germany's elections and the potential shift in its defense policies, aligning with the Accord's objectives.

[29:54] Tracy Alloway:
Tracy references her own analysis on the Mar-a-Lago Accord's implications on global financial structures, encouraging listeners to engage with related content for a deeper understanding.

[30:36] Joe Weisenthel:
Joe humorously credits the podcast's foundational discussions as underpinning the broader debate on global financial restructuring.

[30:58] Tracy Alloway:
Tracy concludes the content segment, prompting listeners to stay informed and engaged with ongoing discussions.

Notable Quotes:

• Jim Bianco [08:34]:
  "The trade weighted dollar has been up 218% over the last 40 years. That's making U.S. manufacturing more and more uncompetitive."

• Jim Bianco [22:23]:
  "If you fix one, you fix the others. If you can't fix one, you can't fix the others. They're all part of a larger whole."

• Joe Weisenthel [16:20]:
  "I'm embarrassed to say I did not realize that the long-term trajectory of the dollar index and the trade weighted dollar look so different."

• Tracy Alloway [17:03]:
  "One thing we don't have that a lot of countries with sovereign wealth funds actually do is a current account surplus."

Key Takeaways:

1. Mar-a-Lago Accord: A hypothetical framework aimed at reorienting the U.S. monetary system to enhance competitiveness by addressing the strong trade-weighted dollar, national debt, and defense spending.

2. Currency Valuation: Distinguishing between the Trade Weighted Dollar and the Dollar Index is crucial in understanding the dollar's impact on different sectors of the U.S. economy.

3. Defense Spending: Increasing defense contributions from European allies could alleviate U.S. financial burdens, facilitating economic reforms.

4. Sovereign Wealth Fund: Proposals to monetize U.S. assets, including undervalued gold and unexpected holdings like Bitcoin, to establish a SWF despite the country's debtor status.

5. Global Financial Realignment: The Accord signifies a potential shift towards more transactional international relationships, emphasizing economic contributions in exchange for security guarantees.

6. Policy Feasibility: The implementation of such comprehensive reforms involves navigating complex interdependencies between debt, deficits, currency strength, and international alliances.

Conclusion

The episode delves deep into the theoretical underpinnings and practical implications of the proposed Mar-a-Lago Accord, presenting a nuanced perspective on how the U.S. might restructure its economic and monetary policies to regain competitiveness and manage national debt. Guest Jim Bianco provides a thorough analysis, contextualizing historical precedents while exploring innovative strategies like the establishment of a Sovereign Wealth Fund. Hosts Joe Weisenthel and Tracy Alloway facilitate a rich discussion, connecting policy proposals to real-world geopolitical developments and emphasizing the intricate balance between economic objectives and international relations.

For listeners interested in the evolving dynamics of global financial systems and U.S. economic strategies, this episode offers a comprehensive exploration of potential future pathways and the challenges inherent in orchestrating such significant changes.

Transcript

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Bloomberg audio Studios Podcasts Radio News.

[Tracy Alloway]

Hello, and welcome to another episode of the All Thoughts podcast. I'm Tracy Alloway.

[Joe Weisenthal]

And I'm Joe Weisenthal.

[Tracy Alloway]

Joe, when you hear Mar A Lago, what do you think of.

[Joe Weisenthal]

You know, it's funny, I don't know what Mar A Lago is. Actually, I've been meaning to look it up. Is it a house?

[Tracy Alloway]

I thought you were gonna say, I've been meaning to go there.

[Joe Weisenthal]

I'd like to go There, too. But is it. Is it a house? Is it a country club? Is it a place where someone can just book a room? Like, I actually don't have a great conception of it, except I'm sure it's very 80s aesthetic.

[Tracy Alloway]

Here's what I know. There's Trump.

[Joe Weisenthal]

Yes.

[Tracy Alloway]

There's golf.

[Joe Weisenthal]

Heard of it?

[Tracy Alloway]

And that's about it.

[Joe Weisenthal]

Yeah.

[Tracy Alloway]

I think the last thing anyone thinks of when you hear the word Mar a Lago is the potential for another international monetary accord. Like, no one really thinks that. Right.

[Joe Weisenthal]

Did Xi Jinping go to Mar a Lago during the first Trump administration? I think he did.

[Tracy Alloway]

Oh, he might. Right. Okay. But there was no new monetary agreement, right?

[Joe Weisenthal]

No, nothing like really that big came of it. But we know Trump loves it. It's Trump aesthetics. And I'm sure he'd love to, like, host world leaders at his club, at his house, at golf course.

[Tracy Alloway]

Well, you know, the funny thing is, if there was going to be a Mar a Lago accord, like, say it actually happened, then I think it would be the second major monetary agreement that happened in a hotel or a building owned by Trump, because the first One was the 1985 Plaza Accord, and he owned.

[Joe Weisenthal]

Did he own it at the time?

[Tracy Alloway]

I think so, yeah.

[Joe Weisenthal]

Well, it's got to happen then.

[Tracy Alloway]

Yeah. Okay. For those who don't know what we're talking about, Wall street analysts, investors, are all abuzz over the pot or a Mar a Lago accord. The idea being that the US Kind of sets out this new monetary system in a similar way to the 1985 Plaza Accord or the original Bretton woods agreement. And I gotta say, this is just interesting from a theoretical perspective. And I think it also points to a lot of important stuff about the way the Trump administration is thinking about not just the economy, but the financial system and I guess the global order itself. So we should talk about it.

[Joe Weisenthal]

No, it really does speak to it. We should absolutely talk about it, because there are core tensions within Trumpism that this gets to. And one of the big ones is, I would say there's two, specifically. One is the sort of desire to turn the US Into a manufacturing powerhouse. And theoretically, one aid for that would be a weaker US dollar. And so this idea of the dollar is too expensive. And maybe, you know, maybe there's some agreement to weaken it could help US manufacturing. And then this question of how influential globally does the US Want to be, period, across anything, whether it's military, whether it's finance, whether it's currency, etc. And, you know, one of the ideas of, like, pulling inward tariffs, etc. Changing some questions about the international security relationship. Is this idea of like an inward turn and maybe the US doesn't want to be as prominent globally on the stage. It's all kind of wrapped up in the same question.

[Tracy Alloway]

Yeah, absolutely. So, again, we should talk about it. And I'm very pleased to say we have the perfect guest. I can't believe he hasn't been on the show before, but we're going to be speaking with Jim Bianco. He is, of course, the president and founder of Bianco Research. He recently held a presentation for his clients all about the Mar A Lago Accord, the potential Mar A Lago.

[Joe Weisenthal]

The Mar A Lago Accord that doesn't exist.

[Tracy Alloway]

That doesn't exist yet. The hypothetical that we should nevertheless talk about. So, Jim, thank you so much for coming on. All thoughts.

[Jim Bianco]

Thanks for having me and Tracy to correct you. Trump bought Plaza in 1988 and it was 1985.

[Tracy Alloway]

Gosh darn it. Okay, well, Jim, two hotels that he.

[Joe Weisenthal]

Theoretically at some point was connected to.

[Tracy Alloway]

Jim, why don't we start with the client meeting? What sort of inspired you to have something specifically dedicated to, you know, a hypothetical that hasn't happened yet.

[Jim Bianco]

So Trump becomes president and we've been talking about a fire hose of executive orders and new ideas, and we're all straining to keep up with everything. And my clients, you know, started asking me a lot about what he was doing, but they were doing it in isolation. Oh, what does tariffs mean over here? And what do you think they're going to do with the sovereign wealth fund over there? And they were taking the attitude that we're just kind of pruning and nipping around the edges. And I said, no, I think there's a bigger plan in place here. And it was laid out by Stephen Mirren when he was with Hudson Bay Capital. And now he's the Council of Economic Advisors chairman for President Trump. And in Trump 1.0, he worked under Steve Mnuchin at the Treasury Secretary in a report he put out right after the election about reordering the monetary system. And I said, I think that they're really starting to think bigger picture. And within that report was this concept of a Mar A Lago Accord. And what I tried to emphasize was this is not a roadmap per se, that we're going to do A, B, C, D and E. But look at this as there's bigger things going on here and we need to understand what their objectives are, how much of it has been implemented and I would argue too, a lot has been implemented of it so far and where we're going to go with it. So that was the catalyst for why I thought it was important enough for its own presentation.

[Joe Weisenthal]

I guess I have a sort of two part question is one, is, is the Mar A Lago Accord an event that you see happening or potentially happening where a bunch of people come to Mar a Lago or is it like a metonym for a sort of destination, a new position for the world in the US after some number of years? And if it's the latter, like no one can really know the A, B, C, D and E. But what does that sort of, you know, we're here now we get to this destination. What is this sort of new role for the US in that destination?

[Jim Bianco]

Yeah, I think it's the latter. It's more of a destination. By the way, the name Mar A Lago Accord, as you pointed out, there's been two big monetary realignments, currency agreements in the last 50 years, Bretton woods and the Plaza, which we talked about a second ago. Bretton woods is a resort, New Hampshire and Plaza is obviously a hotel in New York. So these things tend to get named after the places that they're constructed. So that was the concept behind the name Mar A Lago Accord is just kind of fitting with that genre. Now where are we going? The goal here is to make the US More competitive and the US to be more competitive, I think needs a couple of things. One needs to see the dollar go lower, but a specific kind of dollar to go lower. Let's call it the trade weighted dollar. And the reason I say that is the Federal Reserve has this thing called the trade weighted dollar. And if you look at it over the last 40 years, it's up 218%. So the dollar's been extraordinarily strong. Now you and I might be more comfortable looking at the DXY dollar index. That's down 5% over the last 40 years. Now what's the difference between the two? The trade weighted dollar is 26 currencies weighted by the amount of trade that we do with these countries. The big two dominant players are Canada and Mexico. The dollar index is six currencies weighted by more financial flows. 57% of that is the euro. So when we talk about that, the dollar has been holding back manufacturing in the U.S. trade in the U.S. it's been this trade weighted dollar that has just been getting stronger and stronger and stronger. And we keep looking at the Euro Going, no, it's not. No, it's not. But we don't trade with the Eurozone as much as we trade with Canada and Mexico, and then if you want to even throw in there, China as well. So that's where I think, to bring down the dollar. Now, how do you bring down the dollar? By reorienting the financial system. You have to deal with the debt situation, the deficit, interest rates in the United States, and that's really what the crux of the problem is. Or let me put it to you this way. If you want to talk about bringing the dollar down, dealing with the deficit, dealing with the amount of debt in the United States, they're all interrelated. If you fix one, you fix the others. If you can't fix one, you can't fix the others. And so they all are all part of a larger whole. And that's what I think the idea of the Mar A Lago accord is now at its base, it's basically the idea behind it, is we have $36 trillion of debt. Where did most of that debt come from? It came from the military and security arrangements for the post World War II era. And during the post World War II era, the countries that we protected on our side didn't really pay for it. In particular, if you look at the European countries, they've paid up until Trump 1.0 less than 1% of their GDP in defense, where in the 80s and 90s, the US was paying 8 or 9% of its GDP in defense, and it's still paying 5 or 6% of its GDP in defense. And so they have had, quote, unquote, a free ride for decades on the back of American security. Trump 1.0 came in and said, this is unfair. You have to pay more. They agreed to up that to 2%. Trump 2.0. January 23rd, he came and gave a presentation to Davos, the World Economic Forum, virtually, and he said he's going to demand that they pay 5% of their GDP in terms of defense. And you've seen since then, the European leaders have been coming around to this idea that maybe we need to pay more for defense, maybe we need to suspend the Maastricht agreement, which is part of the euro agreement that says that they can't run a deficit more than 2%. So they could spend $3 trillion over the next decade on defense. And that's got the eurozone defense stocks going vertical. And this whole argument that is coming, that maybe they need to do it, and that is maybe coming back to the us and the idea, well, if they're going to spend trillions, then we could spend a lot less on defense and that that helps our financial position, hopefully relieving us of the debt, bringing the deficit down, lowering interest rates and lowering the dollar. That is basically what we're trying to come at was that we've got a lot of debt, we've got a big deficit, who should pay for it? And the typical answers you've always gotten was, well, we gotta raise taxes, we gotta cut spending. And Trump under his America first policy saying, how about those guys over there in the NATO countries that haven't paid anything, maybe they should start paying more. So the reason I thought the Mar? A Lago Accord was important to talk about now is it's kind of happening in some forms or another and we should start getting our head around it. And part of that, which I haven't brought up, is tariffs. Tariffs are part of this bigger hole. We could talk about that as we unfold.

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[Joe Weisenthal]

Two things, Tracy, real quickly. One is, I am embarrassed to say I did not realize that the long term trajectory of the dollar index and the trade weighted dollar look so different. You know, they move pretty similar day to day. But look, it is a really striking 40 year chart. Oh yeah, and also to this point we're recording this on Monday the 24th. Yesterday Germany held their elections and it looks like Friedrich Merz is going to be the new Bundest chancellor.

[Tracy Alloway]

Bundeskanlar.

[Joe Weisenthal]

Bundeschanzler, you can correct me, but he's talked about this directly, that there's going to have to be some relationship. And you can look at a stock of a German defense company like Rheinmetall.

[Tracy Alloway]

And that's a very good role of.

[Joe Weisenthal]

The R. And it is straight up anyway to you.

[Tracy Alloway]

Yeah. Okay. So we touched on the dollar and the desire to weaken the dollar in order to I guess fulfill the Trump mandate to reshore manufacturing. We talked about the security element. One thing I do want to talk about is interest rates. Because when you think about the US's role in the global economy, I mean the US's main export is basically debt, right? It's US treasuries. And there's been this discussion for a very long time about whether that is net, net a good thing for the US or a bad thing for the us. Jim, can you talk about that side of things for a bit?

[Jim Bianco]

Yeah, you're right that the conveyor belt has always been that we import a lot of things and we pay for them with dollars. So we export all of these dollars to China, to Canada, to Mexico, wherever else, to the petrodollar states or the Gulf states that produce oil. And what do they do with all those dollars once they get them? They reinvest them back into the United States, into, in the Treasuries. So when people look at the idea that something like half of all Treasuries are owned outside of the United States? Well, that's going to be the case when you're running a gigantically large merchandise trade deficit. You're paying for that stuff with your currency. And dollars are not very good in Beijing or in Riyadh. You have to do something with them and you just reinvest them back into dollar based assets like US Treasuries. And so we've had that whole conveyor belt going. But the problem with that conveyor belt is that it keeps the cycle going where that trade weighted dollar keeps going up and up and up. And it makes us being an export country, mainly manufacturing, more and more uncompetitive. So the idea behind trying to reverse that is by maybe ending this relationship with so much debt, bring that down, bring down the deficit as well, and hopefully bring down interest rates that would lower the value of the dollar and make us more competitive. Like I said, you can't think of these things as three separate things like the level of debt, the deficit and the level of the trade weighted dollar. They're all somewhat related to each other, if not directly related to each other. Dealing with one is dealing with the other two.

[Joe Weisenthal]

A question that I find that I have asked in the past is in the modern economy in 2025, do you still have confidence that currency weakness or currency strength are important dimensions of export or manufactured competitiveness? Because I can imagine when you're making a commodity or something simple, right, your base is cheaper, okay, you sell more. But now we have these incredibly advanced supply chains. There's good reason to believe that in many areas that are important to the US that the US is no longer at the leading edge of technology, particularly when it comes to automobiles and certain other high tech things like that. To what degree in 2025 do you believe that the value of your currency is an important dial for your export competitiveness?

[Jim Bianco]

Well, that's a good question and it depends on what you're trying to export. So what the US currently exports is more services. And services do tie into a lot of intellectual property. And you're right, if we're going to be exporting legal services or technology, those services are somewhat unique to the U.S. there are some are the U.S. companies that export those. And the level of the dollar doesn't really matter. But if you're talking about returning a manufacturing base to the U.S. now you're getting more towards a commodity type product. Anybody could produce it. Other countries could produce a manufactured product, whether it's steel or even cars, and they could be relatively the same as ours. So you compete on price. And when you compete on price, then the level of the dollar, the level of exchange rates, especially trade weighted exchange rates for the success of those products, and it matters quite a bit. So if you're trying to return a manufacturing base to the US the level of the trade weighted dollar does matter.

[Tracy Alloway]

I wanted to go back to the sovereign wealth Fund idea as well. Because I think when most people hear, you know, swf, they kind of think of commodity exporting countries. You know, countries in the Middle east, perhaps, that export things like oil and gas, maybe Norway. And obviously the US has become a net exporter of oil in recent years. But the one thing we don't have that a lot of countries with sovereign wealth funds actually do is a current account surplus. Right. So how would a sovereign wealth fund actually work in the US Given that at the moment, we don't really have a pool of money to invest?

[Jim Bianco]

Are you sure about that? I thought most people would think SWF meant single white female on that.

[Joe Weisenthal]

I was going to make that joke.

[Tracy Alloway]

Not on odd laws.

[Jim Bianco]

Yes. But as far as the sovereign wealth fund, you're right. There's lots of sovereign wealth funds around the world, and they all have one thing in common. They're creditor countries. Right. They have something that generates cash for them. In fact, there's actually one sovereign wealth fund in the United States, it's the Alaska Permanent Fund.

[Bloomberg]

Oh, yeah.

[Jim Bianco]

And that's because of the royalties that it gets. Yeah, that's because of the royalties that it gets off of oil. So sovereign wealth funds in that respect, whether it's Norway, Alaska, the Gulf states, that makes sense because they're generating money. They have to do something with the money and they invest it. But we're a debtor nation, as you said. There's no cash flow that's sitting around going, what are we going to do with this money? Because we're a debtor nation. So at first, it was kind of a confusing idea. How are we going to create a sovereign wealth fund when we're not generating any money? And then that was February 3rd, when Trump signed the executive order. And then Treasury Secretary Bessen said, we're going to monetize the assets of the United States balance sheet and put them to work. Okay, what does that mean? No one knows for sure. And to be particular, the treasury said, we'll get back to later this year with a paper and how this is going to work. But we initially surmised, oh, they're going to take some assets that we own, maybe realize them at market value, and then put those into the sovereign wealth fund. And the two that kind of jumped out at first was gold. There's 8,100 tons of gold that the US owns, subject to Elon Musk and President Trump visiting Fort Knox to make sure that it's still there. But assuming that it is, it's valued and has been valued at its book value of $42.22 since 1973, the market value is $2,900. So if you just said, okay, we're going to take that $8,100 of gold and we're going to revalue it to $2,900, there's 800 or $900 billion right there. The other one is bitcoin. The Justice Department, through criminal and fraud investigations, has acquired 207,000 bitcoin that they have not been able to figure out who the owners are. It's about $11 billion or so. And it's literally sitting on a thumb drive at the Justice Department. Maybe we can move that into the sovereign wealth fund too. And then those are some of the assets it has. Now. Other assets you could argue could be the federal government is the largest real estate owner in the United States. It owns parks, it owns other types of assets that it could manage those assets within the sovereign wealth fund, and then it could start off with trillions of dollars of these assets and borrow against that to then buy other assets like TikTok, which President Trump has been floating the idea that the US should own TikTok. Now, why would they do this? I think they would do this for one of two reasons. Reason one, if you're thinking like a private sector person, right, I got a bunch of debt here, but you want to compare it to your total assets or your equity. But we're not fully valuing our total assets and equity. Let's kind of show that we have a lot more assets and equity than we think, so that that level of debt doesn't look as onerous as it was. And the second one is you could borrow against those assets because one of the things within the crypto community they're talking about, the sovereign wealth fund, is going to buy Bitcoin, which I don't think is a very good idea. But nevertheless, one of the big competiments to buying it would be the idea that we're going to borrow even more money, potentially crowd out interest rates and drive them even higher. Because the American public's going to say, I'm happy paying a higher mortgage rate so that we could speculate on the price of bitcoin and maybe the federal government will turn a profit on it, that's a non starter. But if the idea is, well, we're going to borrow against some of these gold holdings or some of these other holdings and it's not really going to affect your level of your mortgage, mortgage rate, that might be a more palatable way to do it. So that's how I think the sovereign wealth fund is going to work. That's what everybody surmised under the idea that we don't know what monetized the assets of the United States means. We're waiting on the report and we're trying to color in the lines until we get that.

[Tracy Alloway]

I keep thinking about the $12 billion bitcoin drive and hoping no one loses. Is it? Jim, thank you so much for that explanation of, you know, it is still a hypothetical, a theoretical situation, but you walked us through it very, very well. So thanks for coming on all box.

[Jim Bianco]

Thank you.

[Joe Weisenthal]

Thanks so much, Jim. That was great.

[Tracy Alloway]

Joe. There's so much in there. And I guess the big question is obviously the feasibility because the whole Mar a Lago Accord idea, you're trying to resolve these tensions, right? So the idea that you want to reshore manufacturing, but you also want a weaker dollar and these things are sort of at odds with each other sometimes, all these different moving parts. But I wonder, I guess I wonder with the Mar a Lago Accord, a potential one, if you're introducing another big tension, which is you're sort moving into a very transactional relationship. So the idea that the US wants to be compensated for all of the different roles it fulfills in not just the global financial system, but in things like international security. And at the same time, as you move into a transactional relationship, it feels like there's less trust in those relationships. Right. Like would countries in Europe, NATO countries, for instance, want to exchange money for US security when what they've been grappling with for the past two months, I guess, is the idea of the US suddenly changing its mind or asking for new things when it comes to security agreements.

[Joe Weisenthal]

So a few things, like Jim said, you know, a lot of this is like, you know, it is all like hypothetical. We don't know exactly where it's going. But just to start, the idea that Europe is sort of, quote, waking up and realizing that it has to take care of much more of its defense seems absolutely real and not theoretical. Now how that will be translated into spending, especially given, you know, the famous German debt break, et cetera, we don't know. But that feels like it's going to be a real dial mover. By the way, I think seriously, all listeners should pull up a chart of Rheinmetall. The ticker is RHM on the German stock market and just look at this stock and you can see it jumped after the Russian invasion of Ukraine and then it's just been going absolutely bananas since then. I also recommend there's a really good article from November by our friend Karthik Sankaran and he really talks about how Besant has been on board with this idea as well, that there really should be, in his view, this very transactional relationship where if a country wants to be under the US Security umbrella and wants liberalized trade relations, then it has to commit to buying long term treasuries and that that should be a trade. And so this sort of transactional approach look art of the deal, like it sort of makes sense that this is the direction to look at from on many different avenues.

[Tracy Alloway]

Speaking of transactional, can I recommend one of my own articles?

[Joe Weisenthal]

Please?

[Tracy Alloway]

All right, so last week in the Odd Lots newsletter, which everyone should subscribe to, I talked about the sort of Chinese nesting dollar of ideas embedded in the Mar A Lago Accord. So you just mentioned Scott Besant, the new Treasury Secretary. And then I guess the layer under that is Stephen Mirren, who we spoke about in that big paper Restructuring the Global Trading system. And then below that is Zoltan Pozar.

[Joe Weisenthal]

Oh yeah.

[Tracy Alloway]

And if you read Mirren's paper, you'll see a lot of references to Pozar's thinking and the new Bretton woods concept and the idea of maybe the global financial order starting to change.

[Joe Weisenthal]

And then below Pozar is the Odd Lots podcast. It's sort of like that meme right at the very bottom where it's really us that's holding up the entire and restructuring the entire system.

[Tracy Alloway]

And on that note, everyone should check out some of the old episodes we did with Pozar on the new Bretton Woods. Cause a lot of this is stemming from those. So in the meantime, shall we leave it there?

[Joe Weisenthal]

Let's leave it there.

[Tracy Alloway]

This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me. Tracee Alloway.

[Joe Weisenthal]

And I'm Joe Wiesenthal. You can follow me hestalworx. Follow our guest, Jim Bianco. He's at Bianco Research. Follow our producers, Carmen Rodriguez at CarmenArman, Dashiell Bennett at Dashbot, and Kell Brooks at Kell Brooks. For more Odd Lots content, go to bloomberg.com oddlots where we have transcripts, a blog and a newsletter. And you can chat about all of these topics 24. 7 in our Discord, Discord, GG Oddlauts.

[Tracy Alloway]

And if you enjoy Odd Lots, if you like it when we talk about hypothetical changes to the international financial monetary order, then please Leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg Channel on Apple Podcasts and follow the instructions there. Thanks for listening.

[Jim Bianco]

Join Bloomberg in Chicago or via livestream.

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[Jim Bianco]

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