Trading floor at the New York Stock Exchange
Before I go further here, let me qualify everything I’m saying here with a warning: I have no crystal ball from which to give people investment advice. However, I do know logic and arithmetic, apparently unlike Donald Trump, so I can draw out some hypothetical situations, which is what I do below.
There has been much discussion, both here and around the world, of the possibility of a flight from the dollar. This has always been a serious risk since Donald Trump took office, but the risk increased enormously from his deranged rant at the World Economic Forum in Davos last week.
Virtually everyone who was not on Trump’s payroll acknowledged that the speech was both scary and incoherent. He made threats to our allies, boasted about imposing tariffs based on personal whims, and displayed an extraordinary ignorance of major world events. With Trump commanding extraordinary powers as president as a result of a docile Republican Congress and servile Supreme Court the United States does not look like a good place to park your money.
There have already been some prominent instances of pension funds pulling their holdings out of Treasury bonds and other U.S. assets, but this is the less important part of the story. Most of the money at risk of leaving the United States is not held by public pension funds which may announce their decision to make a political point.
Rather, most of the money at risk of fleeing is held by private corporations and banks, and wealthy individuals, who would pull their money out of the United States because they think that Donald Trump’s America is a bad investment. There are literally trillions of dollars that could be leaving.
To correct one of the silly things often said by people who should know better, no individual, bank, or corporation is asking where to park one, two, or three trillion dollars. This scenario is supposed to leave them paralyzed in any effort to leave dollar assets, because there is no good alternative country where they can park $4 trillion.
But that is not how the financial system works. The big investors are asking where they can park $10 billion, $50 billion, or $200 billion, and the answer is there are plenty of places where this sort of money can be placed with reasonable safety, including the European Union, Brazil, China, India, the United Kingdom, and Canada. A flight from the dollar running into the trillions would be the result of tens of thousands of decisions to pull millions or billions of dollars out of dollar denominated assets.
I don’t know if we are seeing the beginning of this sort of flight, but if we are, we can say with some degree of confidence that the dollar, along with the U.S. stock, and bond market are headed lower. If that is the case, there is an obvious strategy for people in the United States: join the flight.
If the price of U.S. assets is headed lower, those interested in protecting the value of their retirement money, their kids’ college funds, or other savings should get out before the plunge. Fleeing dollar assets is not difficult to do these days.
Most brokerage houses offer foreign stock and bonds funds that will protect people from both a fall in domestic markets and a fall in the value of the dollar. (The collapse of the AI bubble could cause a plunge even apart from Trump’s craziness.) Obviously, some options will be better than others, but people should apply the same rule in looking at foreign funds as they would with domestic ones. Look to diversify your holdings. You probably don’t want to put all your savings in a German or Italian fund. Both countries’ markets may do great, but there also could be reasons they end up as poor investments. It’s best to hold funds that have stocks and bonds in a number of different countries.
And pay attention to fees. Some funds, like those managed by Vanguard, typically have low fees, while others can charge as much as 1.5-2.0 percent annually to invest your money. Remember, these fees are money that you’re just handing to the financial industry. If you have a fund that charges a 1.5 percent fee on a $100,000 account, that means you’re giving $1,500 a year to the company. Most people can probably find something better they can do with $1,500.
The other part of the story about joining the flight is that you will be speeding the decline in the dollar and the U.S. markets. In ordinary times, that would not be a good thing, but we know that Donald Trump cares about what happens in financial markets. He is totally fine with ignoring Congress (e.g. the Epstein files), the courts, and international law, but he does respond when financial markets take a dip.
Trump is surrounded by ridiculously rich people who couldn’t care less about democracy or what happens to the country, as long as they are making money. However, if they start to lose money because of Trump’s vicious loon tune policies, they will get upset. That could get Trump to start respecting the law and the Constitution. It could be our best hope for saving democracy.
And remember, if the stock market and the dollar are going down anyhow (the dollar has already fallen almost 10 percent under Trump and the stock market has lagged nearly every other major market), you will be protecting your savings by getting out ahead of the rush. This is definitely a case where millions of people can do well by doing good.
Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.
Reprinted with permission from Dean Baker.
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