Russian-born Lydia Lopokova was not happy with her accommodations at the posh Mount Washington Hotel.
The world-famous former ballerina complained that, in room 219, “the taps run all day, the windows do not close or open, the pipes mend and unmend.” Not to mention the hotel pool was absolutely frigid, even for someone who had grown up in frosty Saint Petersburg.
Lopokova coped by practicing her ballet moves late in the evening– the only time when the crisp New Hampshire mountain air made it tolerable enough to exercise.
But perhaps she was just being petty; US Treasury Secretary Henry Morgenthau was staying right below her in room 119… and Lopokova’s constant grande jetes and pirouettes reportedly kept him awake all night.
It was early July 1944. And delegates from all over the world had descended upon the picturesque town of Bretton Woods, New Hampshire for the most important monetary conference in history.
(The Mount Washington Hotel was specifically chosen because it was the largest structure in all of New Hampshire… and the only facility capable of accommodating such a large group.)
The event was truly international; the New Yorker magazine celebrated the “gathering of Colombians, Poles, Liberians, Chinese, Ethiopians, Filipinos, Icelanders, and other spectacular people.” Lopokova described the atmosphere as a “madhouse”.
But she had no choice… for her husband, the legendary British economist John Maynard Keynes, was the star of the show.
Keynes in many ways was like Albert Einstein– he had transcended his profession and become something of a cultural icon. And all throughout the conference, other delegates waited patiently for a photo while reporters frantically wrote down his every utterance.
“Lord Keynes,” said his colleague Lionel Robbins, “was photographed from at least 50 different angles. . . Lord Keynes standing up, Lord Keynes sitting down . . . and so on and so forth.”
But despite Keynes’s celebrity and gravitas, it was the Americans who had called the Bretton Woods Conference… and it was the Americans who were running the show. The United States was out to create what one of Morgenthau’s top lieutenants had called “a New Deal for a New World”.
Everyone in room knew that World War II was nearing its conclusion. The Allied invasion of Normandy had succeeded, and Nazi general Gerd von Rundstedt was about to advise Hitler to make peace. So, it was time for the allies to contemplate a post-war future.
US President Franklin Roosevelt’s message to delegates was to “take counsel with one another” to determine “the shape of the future which we are to win.”
It was a polite gesture to pretend that there would be debate and compromise among the various nations. But it was clear to all that “the future” which Roosevelt referenced would be 100% dominated by the United States. And everyone had precisely 21 days to get on board the America Train.
The primary agreement was that the US dollar would be fixed to gold… and all other nations would peg their currencies to the US dollar. The dollar would become the global reserve currency.
Keynes was furious, and at one point he screamed at senior US officials over their “lunatic proposals.” (The New York Times wrote that “the majestic beauty of the surroundings is in striking contrast to the temporary bedlam which broke out” at the event.)
Great Britain was being stripped of all power and prestige– even losing traditional export rights to its own colonies. For Keynes, the entire event was a constant, humiliating reminder that there was no room in the New World Order for Great Britain.
But Keynes was also realistic; British debt-to-GDP had swelled to a whopping 240% in 1944, up from just 29% prior to World War I. Britain simply didn’t have the economic muscle to be the world’s dominant superpower.
So, in the end, he signed the Bretton Woods Agreement (though later complained that no one had been given “a chance of reading through a clean and consecutive copy of the [final] document.”)
In other words, the contract which formally unseated Britain as the global economic superpower had its most preeminent economist’s signature on it.
We may very well be watching the early stages of a similar seismic shift in global finance– a move that may displace the US as the global economic power. And in the end, there could likely even be a formal contract with a prominent American’s signature on it.
As one of Donald Trump’s top economic advisors, Stephen Miran, recently wrote, “We may be on the cusp of a generational change in the international trade and financial systems.” He would know; he coined the term “Mar-a-Lago Accord”, and its basic principles are playing out in real time.
Their central idea is to throw free trade and free markets out the window… and acknowledge that both (1) US-led global security and (2) access to America’s lucrative consumer market are esteemed privileges that foreign nations must pay handsomely for.
To be fair, the premises are not crazy. For example, they question why America should have “free trade” with a foreign nation that doesn’t respect US intellectual property rights. Or why the US should bear the costs of providing security to nations which don’t pay their NATO obligations in full.
These are not unreasonable assertions. But what they’re talking about is still a fundamental reset in the global financial system that has existed for decades. And that’s a high-risk gamble.
First off, countries must bow to America’s political agenda. If not, tariffs will be imposed. And these guys honestly believe that tariffs are revenue-positive.
Miran writes that “tariffs provide revenue, and if offset by currency adjustments, present minimal inflationary or otherwise adverse side effects. . .”
He then cites the 2018-2019 trade war against China as an example of tariffs not sparking inflation– primarily because the Chinese devalued their currency. He ignores other examples (Smoot-Hawley) of tariffs wrecking the economy.
Furthermore, access to the US consumer market, plus the promise of security and military support, must be ‘bought’ by foreign governments and central banks who must swap their US government bonds for long-term “century” bonds which potentially pay no interest.
Again, countries which do not comply will face tariffs.
We’re already witnessing the plan’s first phase: tariffs on Canadian and Mexican products. Europe is on deck. This does not seem to be an idea or wild theory– it’s happening right in front of us.
Will it work? Who knows. If the US government manages to browbeat enough nations into submission, it’s possible there could be some trade re-balancing, additional tax revenue, and decreased interest cost on the national debt.
But there’s also significant risk that even allied nations say, “enough is enough”, i.e. that they turn their backs on the US and dump the dollar for good.
In this case, the Mar-a-Lago proponents believe the Federal Reserve would step in to ‘print’ all the money necessary to finance the bond market.
Remember, during the pandemic, the Fed printed roughly $5 trillion… and we got 9% inflation. There’s $28 trillion worth of US government debt set to mature over the next four years alone. If foreigners turn their backs on the dollar, and the Fed has to print a good chunk of that $28 trillion, inflation could easily skyrocket.
Make no mistake– this is a high stakes gamble with a potentially binary outcome.
They either succeed… and manage to reinvigorate America’s standing with most of the world; or they fail… and torpedo the US economy, spark a nasty bout of inflation, and destroy the US dollar’s dominance in global trade.
Either way, it means a new global financial system. And it’s playing out in front of our very eyes.
