Thanks to one big problem with the economy, it suddenly matters that no one believes a word Trump says

U.S. President Donald Trump holds a joint news conference with Norwegian Prime Minister Erna Solberg in the East Room of the White House in Washington, U.S., January 10, 2018.REUTERS/Jonathan Ernst

• The Trump administration has a rather distant relationship with telling the truth.
• After some missteps at the World Economic Forum, we now know that when it comes to the sliding US Dollar, that lack of familiarity with the truth has consequences.
• It may mean that the administration has limited control of the currency.

No one trusts the Trump administration to tell the truth, and that has become a serious problem.

It is not a problem because of anything having to do with North Korea, or Robert Mueller, or an upcoming to deal to save the livelihoods of young Americans granted citizenship under DACA.

It is a problem because the US dollar is falling, and over the last few days the administration has proven that its words can do very little to stop its cascade.

It is a problem because, in the cloistral world of foreign exchange and currency, words actually mean things. Words, from the right people can change the way money flows around the face of the planet. And now, in the United States, the right people simply cannot be believed.

Expect consequences.

Markets Insider

On Wednesday, Treasury Secretary Steve Mnuchin made a stupid mistake.

“Obviously a weaker dollar is good for us as it relates to trade and opportunities,” Mnuchin said at a panel at the World Economic Forum in Switzerland.

What Mnuchin was signaling (and here on Wall Street we live for signals, even the faintest ones), was an end to the US’s policy on the dollar going back to the Clinton administration — a titanic shift. After that, the dollar fell to a three-year low after weeks of selling on fears that the administration might do nothing to stop it.

Michael van Dulken of Accendo Markets wrote in a note to clients that Mnuchin’s words had traders (naturally skittish creatures if there ever were some) worried about a return to currency wars.

On Thursday, and again on Friday, Mnuchin tried to backtrack. His boss, President Donald Trump, tried his hand at calm too.

“The dollar is going to get stronger and stronger, and ultimately I want to see a strong dollar,” Trump said, though in the past his support for a strong dollar has not been so certain.

Trump’s assurances worked for a hot second, and then they did not.

Currently, the dollar is continuing its trend down. You can see how this would be an unfortunate circumstance during the World Economic Forum. Trump was there to sell the idea that the US is open for business— meanwhile, the dollar was saying that anyone who buys America is buying a depreciating asset.

“‘Words’ in the world of FX do matter – the big turn in the dollar cycle in 1985 was driven by the Plaza accord, and in 1995 by Treasury Secretary Robert Rubin’s initiation of a strong dollar policy,” Deutsche Bank analysts wrote on Friday morning. “We would argue the medium-term bear market in the dollar started with the inauguration of President Trump and President Macron in the US and France, respectively, last year. It has coincided with a structural shift in the relative flow dynamics between the US and the rest of the world.”

It is here that we should note that currently money flows are headed to Europe (to Macron) and away from the US (Trump).

There are a number of reasons for this that have little to do with politics. Wall Street analysts have been saying that 2017 was a peak for the strong dollar cycle for months now. They’ll give you a bunch of economic nerd reasons, “– the sum of the current account, portfolio balance, and foreign direct investment flows — peaked last year,” Deutsche Bank noted. Another financier told me it was a function of central bank and petrodollar rebalancing.

That may all be true, but I’ll give you another reason. No one trusts us anymore. No one believes a word these Trump people say, not even when they try to unsay it.

Markets run on trust, markets run on trust, markets run on trust, markets run on trust

Reuters / Kevin Lamarque

Americans have gotten used to taking the words of their president with a grain of salt. Even during the campaign, his surrogates were saying that he should be taken “seriously, not literally,” whatever that means.

That may work in the petty world of politics and popularity contests, but this is Wall Street, and this is where that nonsense stops. The world of markets is run on trust. The word “credit,” the power behind global financing, comes from the Latin word for trust.

As Treasury Secretary, Steve Mnuchin should have at least one power — the power to convey the economic thoughts of the Trump administration. But he can’t do that. He should be trusted when he tries to do so. But he isn’t. It’s unclear if that’s a personal failing, a lack of talent for articulating his thoughts, or if it’s a direct response to the administration’s policy.

If it is the latter there are two uncomfortable calculations Wall Street must consider. One is that the administration actually wants a weak dollar, and Mnuchin’s ineptitude laid that bare for all to see.

The other consideration is that the administration has no policy on the dollar. This would be the height of incompetence, and yet it would shock no one. In fact, it’s totally plausible.

Bankers and traders are in some sense the world’s plumbers. Their job is to watch and facilitate the flows of money where it is needed. They know where it’s flowing heavily or has slowed to a trickle, they know where it is blocked completely — stopped up by bad policy or over-indebtedness or international politics. Most of them, contrary to Hollywood’s image of the thrill-seeking trader, are incredibly risk-averse.

None of these plumbers, based on a reading of Wall Street research following Mnuchin’s mea culpa, see flows heading to the US, strengthening the dollar in the near future. This is a combination of the world of finance believing that conditions are correct for a dollar slide, and the world of finance believing that the Trump administration is unlikely to do anything to stop it, contradicting Mnuchin and the president’s statements. Trust that this means they will all, for the most part, move in concert. This is a group of people that, aside from a few exceptions, literally all wear the same tie.

For them, and so for all of us, it is a disaster that the Trump administration cannot be counted on to clearly articulate its policy goals. It is a disaster that when they do no one believes them.

The administration’s penchant for lies is messing with our money now, and that matters.