David Rubenstein and President Trump go way back, so it’s perhaps not surprising that the two are of a piece on the issue of the day: Namely, the U.S. dollar, and it being relatively too Great. From high atop the Swiss Alps, Rubenstein echoed the president-elect’s concern that the dollar’s strength “is killing us.” But while Trump focused on how a strong dollar makes it impossible for U.S. companies to compete, Rubenstein’s focus is on how the strong dollar is killing the rest of the world, which will then kill us.
The problem is that higher interest rates will likely push up the value of the dollar higher. That would make it harder and harder for those foreign companies to pay back their debt with their weaker currencies. The result, says Rubenstein, could be a financial crisis.
Not that the president-elect or his supporters would understand, but there is some irony in the predicament, since the dollar is soaring in giddy anticipation of President Trump fixing the economy, which of course he’s already done. And he’s about to make things both better and worse, according to Rubenstein.
Rubenstein said Trump's plans to cut taxes and spend money on infrastructure could make matters worse (a point already made by a number of officials at the Federal Reserve). He said that while Trump's proposals could add as much as $2 trillion to the federal budget deficit, they could also boost the U.S. economy in the short-term at a time when it is already relatively strong. He said that would add more fuel to push the dollar higher.
And that’s not the only irony! No: Many of those indebted foreign companies are Mexican companies, and their local currency has taken a beating on the unlikely scenario that President Trump actually means the things that come out of his mouth. And a financial crisis south of the border would be muy mal, indeed.
"It would be ironic if Mexico had to be bailed out by the next U.S. administration," said Rubenstein. Wall Street Journal editor Gerald Baker, who was moderating the panel, quipped not to worry - President-elect Donald Trump would get the Mexicans to pay for it.