The Mar-a-Lago Accords and The Bear
Are the Economic Leaders of the Trump Administration About to Make the Same Mistake as Carmy Berzatto?
For fans of The Bear, Carmy Berzatto is a celebrated chef who has worked in New York at the highest levels of culinary mastery. But when he moves to Chicago to take over his late brother’s struggling sandwich shop—The Original Beef of Chicagoland—instead of building on the successful foundation, he tries to change everything. He imposes new high-end ideas on a simple, proven formula for a great sandwich. The results are disastrous.
The U.S. Treasuries market is the Original Beef Sandwich. Yes, it could use some improvements to reflect market evolution, but radical changes to its simple, proven formula would be devastating.
The radical changes concern a potential “Mar-a-Lago Accord.”
I began writing about my reservations last month on LinkedIn, generating a huge response from clients and stakeholders who are also worried.
In this month’s Alphabet Soup, I’ll update the state of play and provide more detail on why it’s such a concern for the Treasuries market.
Meet the Concept: the Mar-a-Lago Accord
In a nutshell, there are indications that the Trump Administration is interested in engineering a sweeping plan to reshape global markets by:
weakening the dollar
extending the duration of U.S. Treasury debt, and
using military security guarantees, tariffs, and other coercive tools to enforce compliance.
While not all readers will agree with the concept of such direct linkages among trade, debt, and defense, there’s a certain logic to it.
My main problem is not with the concept per se, it’s with the real- world impact of trying to restructure the existing stock of US Treasury debt through coercion.
Tariff threats are one way to impel changes, and then there’s……
...the Acronym of the Month: IEEPA
The International Emergency Economic Powers Act (IEEPA) is all the rage in Washington these days. It is interpreted as giving POTUS (I had to inject another acronym here for the President of the United States) sweeping powers over international transactions in response to foreign threats.
Some Administration officials have toyed with the idea that IEEPA could be used to impose a user fee on foreign holders of U.S. Treasuries. As the thinking goes, this fee would be in the form of a tax of say, 1-2 percent, that the Treasury Department would withhold from interest payments to foreign holders of Treasuries. The Administration could even charge a tiered fee so that rivals like China, for example, pay a higher user fee than a BFF like the UK.
IEEPA is the hard power tool, together with tariffs and military protection, that some who are now in the Trump Administration have floated as tools to force changes in the behavior of foreign holders of U.S. debt.
Now that you’re acquainted with the Mar-A-Lago concept and the Acronym of the Month, let me explain why I believe the Administration should focus on evolving the Treasuries market rather than upending it.
Message to my Highland Global Advisors Clients: The Mar-a-Lago Accord is a Serious Risk for Global Markets
To assess this risk, let’s meet one of the head chefs of the idea: Stephen Miran, who was confirmed this week as Trump's Chairman of the Council of Economic Advisers.
Miran is a smart guy, a Harvard grad, etc. He’s a fully qualified economist and understands finance, so no reader should dismiss his ideas as being poorly thought out. They are very well thought out, and if everything were to go according to his plan, the ideas could even succeed.
But they won’t. If there’s one thing I’ve learned across three decades of financial markets and policymaking, nothing goes according to plan in markets. That’s because markets interpret new information in real time. The Administration can’t waive a magic wand and enact changes in a day. During the time it takes to do what Miran envisions, markets will go bonkers.
To understand Miran, you need to refer to his November 2024 blueprint for how the Mar-a-Lago Accord would function. Let’s listen to him:
"The U.S. Treasury can effectively buy duration back from the market and replace that borrowing with century bonds sold to the foreign official sector. Such a Mar-a-Lago Accord gives form to a 21st-century version of a multilateral currency agreement. President Trump will want foreigners to help pay for the security zone provided by the United States. A reduction in the value of the dollar helps create manufacturing jobs in America and reallocates aggregate demand from the rest of the world to the U.S. The term-out of reserve debt helps prevent financial market volatility and the economic damage that would ensue. Multiple goals are accomplished with one agreement. But the term-out of reserve debt shifts interest rate risk from the U.S. taxpayer to foreign taxpayers. How can the U.S. get trading and security partners to agree to such a deal? First, there is the stick of tariffs. Second, there is the carrot of the defense umbrella and the risk of losing it. Third, there are ample central bank tools available to help provide liquidity in the face of higher interest rate risk."
So that’s the plan: engage with other governments to depreciate the dollar and pressure foreign holders of Treasuries to extend their debt maturities—or pay a steep price.
The Risks of a Forced Overhaul
The most radical part of the plan is the idea that Treasury may treat foreign holders of Treasuries differently than domestic holders. None of this is confirmed, which is why it remains a "whisper" concept.
The U.S. Treasuries market is the deepest, most liquid in the world, serving as the backbone and price benchmark for nearly every other financial asset. Risking that foundation for an experimental overhaul could be highly damaging to U.S. and global markets.
As Season 1 of The Bear teaches us, a successful restaurant requires not just customers but also assistant chefs, servers, and busboys who believe in the mission and are motivated to take the time needed to fulfill the mission.
Carmy failed to get that buy-in in Season 1, and as time dragged on, the failings piled up. Similarly, Bessent, Hassett, and Miran may find that the "personnel" who make global financial markets work—central banks, finance ministries, politicians, and trade finance banks—will not buy into the risks of the Mar-a-Lago Accord and will resent the pressure tactics.
Will the Treasury market survive this unscathed?
The Bottom Line: A High Chance of Failure
Let’s put it this way: I give the chance of a successful overhaul, as described by Miran, at less than 10 percent. A more likely outcome is a large kitchen fire that destabilizes markets, erodes financial confidence, and forces the Administration to scramble to contain the damage.
One Final Thought: A Speech Worth Noting
Treasury Secretary Scott Bessent recently gave an illuminating speech at the Economic Club of New York, earning praise from the asset management sector for pointing out that the Supplementary Leverage Ratio is impeding Treasury market liquidity.
I agree with him on that.
However, his next statement caught my attention:
"Some have suggested that risk-free exposures like central bank reserves and short-duration Treasuries should not be capitalized even under a risk-insensitive leverage capital restriction." (my emphasis added)
Certainly longer maturity Treasuries are subject to more interest rate risk than T-bills, and perhaps that’s all Bessent was trying to say, but I can’t recall previous Treasury Secretaries distinguishing the short-term Treasury market from long-term securities issued by the U.S. government when talking about the risk-free nature of U.S. government paper.
Could this be a harbinger of a new regime of credit risk for long-dated Treasuries, or am I reading too much into it?
In any case, it’s time for lunch, and Carmy’s classic beef sandwich is sounding like a reliable choice.