How the Weaponization of the Dollar Changed the World with Saleha Mohsin

0:04Hello, I'm Anthony Scaramucci and this is Open Book, where I talk with some of the brightest minds out there about everything surrounding the written word, from authors and historians to figures in entertainment, neuroscientists, political activists, and of course, Wall Street. Sorry, I can't resist. Before we get into today's episode, if you haven't already, please hit follow or subscribe wherever you get your podcasts and leave us a review. We all love a review, even the bad ones. I want to hear the parts you're enjoying or how we can do better. You know, I can roll with the punches, so let me know.

0:38Anyways, let's get to it.

0:47The United States Treasury. There are movies about it. There's Hamilton. There are great biographies written by former Treasury secretaries, but there's no real book until now. My guest today, Saleha Motion, tells us the untold story of one of America's most invincible institutions. How did the dollar come to rule the world? Could our superpower status be at stake? And if we were to lose that power, what would happen? Let's find out.

1:23So joining us now on Open Book is Salea Motion. See that? I'm pretty good at pronouncing names, even though I'm an Italian kid from Long Island. Great to have you on. Senior Washington correspondent from Bloomberg. I mean, it's an outstanding book. I have to give you credit for this. I learned so much in this book. The title of the book is Paper Soldiers, How the Weaponization of the Dollar Changed the World Order. Now, years ago, I read a book called Treasury Wars, which, of course, you know, reference in the book. But this is so much better because it's way more detailed about the ramifications of weaponizing the dollar.

1:58And so, first off, congratulations on the book. I know that this took a lot of time to write, but why did you pick this as a first topic for a first book? Well, thank you so much, Anthony, for having me on the show. I'm so excited to be here with you. You know, I covered the Treasury Department starting in April 2016, so the tail end of Obama, all the way through Steven Mnuchin and the first half of Janet Yellen. And I continue to keep an eye on economic policy in Washington. And I decided to write this because, one, there is no Treasury Department book out there. There's a lot of autobiographies by some great Treasury secretaries.

2:33There are a lot of books on the Fed that touch on Treasury issues. There's a musical about Treasury or about the first Treasury Secretary, Hamilton, but there's no book. And I wanted to show people, tell the world how what Treasury does touches our lives, everyone's lives. And I'll tell you something, Anthony, you were part of the Trump administration, Trump administration briefly or close to them. One thing I learned from covering everyone was that we on the on the right and left coasts forgot about the a certain part of America. And that's what Trump heard. That's where populism came from. And I kind of decided in November of 2016 that I no longer want to be part of the media that forgets, that allows the creation of a forgotten man.

3:22So in the book, I, yeah, a lot of it takes place in Washington and the Oval Office at the Treasury Department. But I take readers to Weirton, West Virginia, to Moraine, Ohio. I'm from Cincinnati, Ohio. And I talk about how economic policies, currency policy, the dollar policy affects real people everywhere. So a lot, a lot, there's a lot to cover. And I want to test the theory on you and I want you to respond. And so the United States came out of the Bretton Woods Treaty with the dominant reserve currency. We were controlling the preponderance of the world's GDP. And so we tied it to gold. We then had massive deficit spending, so we had to unclip it from gold and let it trade freely.

4:05But it still was the, let's say, the tallest of all of the short people in the room. And so it stayed as the reserve currency. But we did two things that I want you to respond to. Thing number one is when Nixon went to China, we allowed China to link their currency to our currency. And our currency was being devalued due to deficit spending. And China was beginning manufacturing. So what would have happened from a macroeconomic policy naturally was the Chinese currency would have gone up. But since it was linked to the U.S. dollar, it traded down. So they got a double whammy of exportation as a result of this.

4:43And it hollowed out some of the places that you're reporting from. What did I miss? You hit it on the nose. This development happened over decades, actually. I think that's what you miss is just the depth of it and how long it took and how it took a while to take root. And then it took root. And then it took a while for people to notice. And let's unpack this a little bit. I think the story really, yes, it begins with Nixon's trip to China and opening up that relationship. In a lot of ways, I think the story begins with Bob Rubin. He started the strong dollar mantra, which actually underpins and supports globalization, which started sort of after that.

5:23Right. NAFTA comes in the 90s, 2001. China enters the WTO, the World Trade Organization. The strong dollar policy. And I go into this in depth in the book. There's a chapter called Bob Rubin's Bumper Sticker. And he created a mantra because he wanted people to get bored of currency policy. Stop asking about the dollar. Stop wondering what's happening. It's boring. So I've got a boring phrase for you to diffuse all the angst and drama around currencies. And it was stating to the world that we want a strong dollar in two ways. Exchange rate wise, sure. But also in terms of dominance. The world runs on dollars.

6:01Everybody needs the dollar. And so this underpinned globalization. And so what happened was, you know, everyone kind of had people in Washington had a sense that there would be some economic scarring that resulted from globalization. There are people who would lose their jobs. You know, the manufacturing sector in the U.S. was hollowed out. More manufacturing overseas because it's cheaper to buy goods from Malaysia and Vietnam and China and parts of Latin America than it is from the expensive dollar angle. 9-11 hits. Everyone takes their eye off that ball. A lot of things come into play and it turns out the economic scarring is exacerbated.

6:41Lawmakers and leaders in Washington really thought we can just retrain people who lose their factory job because those jobs are, quote, shipped overseas, go to China. You can't easily retrain a 52 year old man or woman who has been in the in a factory floor for half their life at that point. It's not as easy as it sounds. And so those people were kind of ignored. And there were alarm bells, you know, in 2000, 2001. People were saying, you know, both Republicans and Democrats, Senator Max Baucus was really vocal about, hey, let's help the steelmakers. People are upset. Unions were making a lot of noise that the dollar is too strong.

7:18It's bad for us. No one was paying attention until in 2015. someone came down a set of golden escalators and we heard Trump really hear the voices, visit towns that no presidential candidate had really paid attention to, and listen to the stories, visit those areas that had these company towns that had just turned into sad old strip balls because the local economy floundered. All right. So a lot here. So before I get to that point of the book, and I do want to address it. I just want to put another piece into the jigsaw puzzle because Rubin was an adherent to pay-as-you-go, which is legislation that was brought forth in the George Herbert Walker Bush administration, where there were guardrails placed on the Congress.

8:07It's hard to believe, but the Congress actually, in a bipartisan way, passed guardrails to control the deficit. And so Rubin said, let's stick to that, which is why Bill Clinton at that time put in the largest tax increase in U.S. history, at least up until that time in 1993. And Rubin's whole thing was the bond market, right? He said he wanted to come back and be reincarnated as a bond market. And we ran the budget fairly tightly in the 90s. And you know this, some of our viewers and listeners don't, but we ran a budget surplus in the year 2000. We squandered all of that going into these wars in Afghanistan and Iraq without raising taxes.

8:42In fact, if anything, Bush too cut taxes in March prior to those wars starting in October. So I want to ask you the following question. The taxes get cut, the deficit goes wild. So we have to monetize that, right? Because we can't pay it back with the actual dollars that we bought. But at the same time that we're monetizing the debt, we're weaponizing the dollar, right? And so tell us about that. Tell us about the process of weaponizing the dollar and give us some examples of the weaponization that took place early on. And then we'll get to the Trump piece and what you're talking about now, which I think is so relevant for the 2024 election.

9:19The weaponization of the dollar, Anthony, started essentially with 9-11. There were some sanctions and economic embargoes before that. The OFAC, the Office of Foreign Assets Control, which kind of runs the sanctions programs, existed before 9-11. It was considered an orphan of treasury, according to a former official there. 9-11 hits. And it turns out, you know, the terrorists had to move a lot of money around to physically finance their attack. And it wasn't a lot of money, not even half a million dollars in 2001. That money moved around in the global, in the U.S. financial system in the light of day in front of everyone to see, Five to ten thousand dollars moved here.

10:11SunTrust in Florida, different banks. It was happening right there for someone to catch. Treasury. So George W. Bush's war on terror didn't start with the rolling of a military tank or American soldiers, troops, you know, hitting their boots, hitting the ground somewhere. It started on September 24th, 2001, when George W. Bush, with a stroke of a pen, gave the U.S. Treasury Department the authority to levy big economic sanctions and be able to track the financial footprints of terrorist financing. How did they move the money? Where is the money coming from? And if we can see how the money moves, maybe we can thwart the next plot.

10:58And look, the U.S. never had that kind of attack on our homeland ever again like that. And part of the reason is some of the unsung heroes at the U.S. Treasury Department. And since then, it's increased. You know, the U.S. has created even more sophisticated economic sanctions. We got into secondary sanctions with Iran. And I go through a lot of this in the book in chapters that are like the war office for treasury, the crystal ball of terror, how money kind of following the money tells you where the next problem might be. Okay. It's very, very helpful because now we're going to do a fast forward to Davos, Switzerland, January 2018.

11:36Mnuchin is there. You write about him in the book. And I believe he says that a weaker dollar, a weak dollar policy is good for the United States. So this is the anti-Rubin statements that are being made in the 90s. So how do we get there? How do we go from strong dollar is good for the US to weak dollar? And what does that mean for populism? I love this question, Anthony. You're asking me stuff that no one else is asking. I love it. So the U.S. Treasury Secretary, Stephen Mnuchin, I covered him really, really closely for those four years. He, you know, expanded Trump's existing policy that he had talked about for decades before it was a policy, before he was a real estate tycoon, that a weak dollar is good for some parts of the economy.

12:18And Treasury secretaries were kind of afraid to acknowledge this because they thought it would just trigger some massive depreciation in the value of the dollar because it looks like, oh, the U.S. wants a weak currency. Maybe they're going to intervene in markets to cause it because they used to do that a lot in the 70s and 80s and even the 90s. They used to meddle a lot. They didn't want to acknowledge it. But Trump, you know, he heard the cries of the manufacturing sector of our country. It was once the backbone of this country. And they suffered. You know, if you have too strong of a dollar, no one wants to buy American goods, not even Americans.

12:50If you have a weaker dollar, at least allow or open the door that if there's a dollar that's weaker because of natural forces of supply and demand, it's OK, guys. That's what Steven Mnuchin was talking about. And I actually think that that freak out in Davos, it wasn't great. A lot of a lot of strategy secretaries have kind of fallen to that trap of misspeaking about the dollar. Steven Mnuchin was not the only one. But I think that investors in the world, you know, allies, finance ministers missed something there. Had they really thought about what Mnuchin was saying in that moment, they would have just heard what the new policy of the country was going to be, because now Biden has that same policy.

13:34He stuck with a policy that is by America, that is friend-shoring. So that's America first. That's putting our country and our sectors first. And Janet Yellen, when she came in, she didn't restore the strong dollar policy. Larry Summers, very outspoken former Treasury Secretary, a Democrat, publicly said whoever the next Treasury Secretary is under Biden should restore this dollar policy that he helped create in the 90s. She didn't do it. So Steven Mnuchin told the world basically where we're headed. And instead of really paying attention to everything he said, everyone kind of freaked out on just this one little part about the weak dollar.

14:11So Robert Lighthizer has been on our show about his book on trade. And what you're saying, I think, is very instructive because the Democrats, and again, I'm not trying to be critical, I'm just trying to be observational, they sort of ignored or left behind the white, blue collar, middle and lower income workers. like Mr. Trump or dislike him, as you point out in your book, he was a champion for them. And so these policies are actually good for them. And they're starting to feel it in an increase in wages. And so Joe Biden, the Biden administration, keeping these policies has been good for these people.

14:53But something else is happening that I want you to discuss. And that is we turn the crank on dollar weaponization at the beginning of the Ukrainian war. So you've got, I get it, we want to have more exports for the US, more wage growth for the lower and middle income people. And so we've adjusted our dollar policy. But at the same time that we're doing that, we have turned the screws on people like the Russians and the Iranians and the North Koreans, and they're doing a pretty good job, are they not, of avoiding the sanctions that we put on. Address that for us if you don't mind, Salih. Yeah, the de-dollarization debate is raging.

15:31And we're going to get to a second because Trump waded into it earlier this month when he went on CNBC to talk about it, but not to talk about it, but he raised it himself. So you have to look at two definitions for a strong dollar. There's the exchange rate just by sheer exchange rate, supply and demand forces. We have a dollar that has a high and strong value against other currencies. The second part is, again, like I said earlier, dollar dominance. Everyone needs the dollar. The world runs on dollars. You could be a picking cocoa beans in Ghana and your livelihood, if that's your livelihood, is influenced by the dollar because you need dollars to sell that because you're going to touch the global financial system to ship those cocoa beans somewhere.

16:16Right. Same with Russian oligarchs with with you name the country. They need to touch the global financial system. And that is the dollar. It's a little bit of a case of like with one hand, we want a weak dollar because there's benefits. And with the other hand, we want this dollar dominance and power because it protects us. And so when we can kind of use it to export our own foreign policy goals, when we see a country causing all sorts of humanitarian strife or, you know, a land invasion or disrupting Europe, disrupting NATO, disrupting our allies, we can say, all right, we're going to punish you.

16:59You're cut off from the dollar. And it's not as blunt as an instrument as I just described. There are different degrees. There is a spectrum on which sanctions operate and you can slowly ramp that up and tighten that vice. But that is what the weaponization is. And with Russia, like you said, we reached maybe a tipping point because we revealed two things, a couple of things. One, that the U.S. was willing to inflict harm on itself for the Ukrainian cause. Americans, in the beginning of 2022, saw their gas prices go up, and that is because of economic sanctions. Russia exports a lot of oil. We cut down those purchases.

17:42The supply and demand forces made gas prices go up. The other thing that was revealed was that a lot of people thought and maybe the Biden administration kind of leaned into this thinking that we do these massive sanctions. We cut the 11th largest economy off. It's a G20 country. They're going to collapse. This war will end because of this. And sure, in the first few months, the ruble dropped 30 percent. Joe Biden said the ruble is now rubble. But the ruble recovered. The economy is actually expanding. It's expected to expand more than expected, at least according to recent IMF estimates. They moved into a war economy.

18:19They're still around. This war is still going. The other thing that we revealed is that maybe we overplayed our hand and we, the U.S., maybe sanctions don't have the power we all thought they did. And I kind of go back to what Hank Paulson once said about a bazooka where you don't want to actually have to pull out your big weaponry because maybe people for all sorts of reasons that maybe people find out it's not as strong as it is. And maybe that happened with the dollar and with those sanctions. Really, really well said. Let's go to some of these countries, Saudi Arabia, China, India. Do you see an alternative?

18:58Do you see a group of BRIC countries that say no mass to the U.S. dollar and they create a facility to transact with? No. Anthony, for me, this book was kind of an act of patriotism myself in a very small, small way. Look, the U.S. is a strong democracy. That means being self-critical. We are at an incredibly self-critical moment right now. I have hope that we will emerge from this and reinforce rule of law, independent agencies like the Fed and the courts, including the ethics around those courts. We will, you know, continue to have free and fair elections. Hopefully some of this deep partisanship bridges are built at some point so that we are strong internally because our economy, first of all, we're the largest world's largest economy.

19:49me. If you look at number two, three, and four, you have to take all of those countries combined to get to where we're at, right? So we're eons ahead in this race. The other countries that you listed, the BRICS +, they talk a big game about de-dollarization. We're going to move away. First of all, there's nothing wrong with a little bit of de-dollarization. If you want to reduce your exposure, great. You want to trade amongst yourselves for a few things, go for it. What's going to happen when some of these countries that are not based around free and fair elections, everyone's life comes to a close.

20:26If their authoritarian leader, you know, succumbs to life, there will be a power vacuum. They're going to take their eye off of de-dollarization. That's the last thing on their list. They're going to have a lot of internal struggles. And that's when their own country is probably going to run toward the dollar. What happens when crisis hits, when another country has a regional crisis, whether it's a couple of currency crisis kind of coming together or there's a coup in the country, political instability? Everyone flees for dollars. Emerging markets issue their government debt in dollars because that's what investors trust.

21:07And that's what's going to happen as long as the U.S. strengthens itself. Okay. So let's talk about that because some people are worried. And let me give you some of the things people are worried about. The Bretton Woods Treaty, we had$35 per one ounce of gold. Now that's$2 ,100 per one ounce of gold. The purchasing power of the dollar has gone down about 98 % in 53 years. Our deficits, some people think are out of control. I'd like to get your take, but we went from George Washington to George Herbert Walker Bush,$7 trillion. Barack Obama, Donald Trump, Joe Biden,$27 trillion. And so we have a$34 trillion budget deficit now, 27 of which manifested itself over the last 15, 16 years.

21:59And so is that going to hurt the dollar standing? Is that something we need to be worried about? Or is Dick Cheney right? Deficits don't matter and we can continue to devalue the dollar to pay off this debt. That data, the way you presented it is staggering. I'm going to keep that in my back pocket. But that's honest data. Yep. I'm giving the exact facts. It paints a picture of how scary this actually is. The deficit is definitely a problem. If you consider the U.S. as a bit of an empire, We're a superpower. No one uses the word empire anymore. But I think superpower is kind of a similar concept.

22:35If you look at the last couple of empires or just any of the big ones, Roman Empire, Greek, Britain, they fell. A lot of it had to do with too much debt. Their treasury coffers were empty. And that's not good. I think the debt is going to be a huge problem, but no one in Washington will do anything about it until markets bully Washington. That's how it worked last time, the last couple of times. There have been problems of fiscal policy becoming so imbalanced, right? So if you think about the 90s, there's a chapter in the book called Vigilantes and Control Freaks, and it's all about when bond traders bullied the Clinton administration over the administration's fiscal spending and economic policies, thinking, well, the deficit is going to blow up out of these policies and we don't think that this is sustainable.

23:33So bond traders, you know, messed with the 10-year treasury yield, got the attention of the administration. And the administration, you know, at the time, Bob Rubin was sort of at the center of economic policymaking in Washington, realized that, OK, this is not the way to go. There's not this appetite for our debt, maybe. And markets are going to punish the U.S. economy if we continue this. I talked to Bob Rubin for the book, and he said the deficit problem will not be resolved unless markets bully Washington. That's how the debt ceiling is resolved every time. It's markets that show how terrifying a debt ceiling breach could actually be for the world before lawmakers realize this is a big deal.

24:19Okay, so we're at the point in this podcast where my producer and I, we come up with five words. you hear the word and then you react you can give me a word, a sentence but the first thing that comes to your head ready? I'm going to say the word Reuben, you say what? Dollar Mnuchin Stable I agree with that, Yellen Fed You hesitated there though there's something else you wanted to say want to say it? I hesitated because, and I've written this for Bloomberg News, I've broken some news on this, that the Biden administration has not given a lot of independence and authority to its cabinet officers, and that includes the Treasury Department.

25:12Yeah. So they've run it as a White House model. If you read Richard Neustadt's book about presidential power, there's a cabinet model. Reagan was big on that. Even Clinton was big on that. But the Biden administration is running it as a White House model. Everything's coordinated through the White House. U.S. Treasury. Money. What about the U.S. dollar? Democracy. Democracy? Okay, interesting. I like that. Okay, well, this book is phenomenal. Are you going to write another one? What are we writing next? I don't know. I feel like my family might disown me if I go down another rabbit hole. But you know what I will say is that Swift is interesting.

25:51I like the color. The cover is great, right? My publisher is... I also like this on the back. We're shooting the money around the world. I like that. Yeah, it's been weaponized. All right. Well, you'll have to tell us when you're writing another book, we have to get you back on. But the title of the book is Paper Soldiers, How the Weaponization of the US Dollar Changed the World Order. Saleha Motion, thank you so much for joining us today on Open Book. It was a pleasure.

26:21I'm Anthony Scaramucci and this is Open Book. For more about me, my childhood, early career, Skybridge, Bitcoin, and yes, The White House, my new book, From Wall Street to the White House and Back, is available for pre-order on Amazon and wherever you buy your books.