Treasury Secretary Scott Bessent can push the dollar down whenever he decides to, Adam Posen said, because a currency under attack is easy to weaken and hard to defend.
Most of the argument over the administration's currency policy has been about whether Washington could really move the dollar. Posen's answer is that the ability was never in doubt. What he disputes is the judgment behind it, and he expects it to produce the opposite of what the Treasury wants.
"It's very short-sighted because weakening the dollar isn't going to help anything."
Posen runs the Peterson Institute for International Economics and has been publishing his own criticism of the administration's conduct — one of those pieces was read back to him on air, and he stood by it.
I listened to the full interview so you can skip it.
Here are the 9 arguments that matter.
👤 Guest: Adam Posen, President of the Peterson Institute for International Economics, who also writes commentary on the Trump administration's economic policy
🎙️ Hosts: Stephen Carroll and Caroline Hepker, who present Bloomberg Radio's Daybreak Europe
📰 Published: 9 September 2026 on the Bloomberg Talks podcast feed
🟣 Apple Podcasts | 🔗 Episode page | ⏱️ 12 min
Key Takeaways
The oil spike matters less the longer it lasts, because demand and shipping routes adjust
He says the major economies are already past the peak of the impact, though it is still inflationary
Long-term government bond yields are rising for at least four separate reasons at once
Defense spending, demographics, less Chinese saving flowing into Western bonds, and politics that no longer self-corrects
A US Treasury Secretary can always weaken his own currency, so the threat to the yen is real
Defending a currency under attack is the hard direction; pushing one down is the easy one
Posen reads the dollar policy as positioning before the Xi-Trump summit, and expects it to backfire
The argument to China would be that the yen and the Korean won have already moved up
The case that an overvalued dollar hollows out US manufacturing is either exaggerated or wrong
US manufacturing has moved up the value chain for two decades, and lower inflation and cheaper capital outweigh the trade effect
He puts US corruption in the same frame as Italy's past or Turkey today, and says most Americans are in denial about it
The denial he considers most damaging is voters believing every politician is equally corrupt
Populists of the left and the right are both bad for fiscal sustainability, on the econometric evidence
No G7 democracy except Italy has produced the cross-party budget fix that used to arrive about every 10 years
Italy and Greece are the exceptions, and both had to have a crisis first
A fiscal problem with orderly markets is not a cheap fiscal problem
Years of higher interest payments crowd out private investment and public services, as in the 1970s and early 1980s
1. $100 Oil Isn't the Story
Stephen Carroll opened by asking whether crude passing another threshold was more than symbolic: "But how important is $100 a barrel oil from a broader scale of things? Is it more than just a psychological threshold?"
Posen's answer was that the level itself is not the point. "Stephen, thanks for having me. I actually don't think it's that big a deal"
His mechanism is adjustment. The longer oil or gas prices stay elevated, he said, the more demand changes and the more cargoes get rerouted
The disruption he does worry about is physical, not price-based. "I mean, the scary thing about the Houthis attacking in Saudi is the Saudis had managed to start rerouting a lot of their shipments, and that's getting broken down, and that has to be dealt with"
He put the major economies past the worst of it while conceding the damage is real. "But essentially, I think we're past the peak of oil impact on the major economies. It'll still be hard. It'll still be inflationary. But the longer this goes on, the less impact it has"
2. Why Long Bonds Keep Rising
Caroline Hepker turned to the rise in government bond yields in Europe and the United States, particularly on longer-dated debt, and suggested the oil move could only add to that pressure.
Posen agreed, and gave a list rather than a single cause: "I think we've got a lot of reasons why long bonds are going up in the U.S. and most of the G7 economies, and it has to do with larger issuance in the face of defense spending, demographics, green outside of the U.S."
The second reason is that less foreign saving is arriving to buy the debt. "It has to do with diminished savings flowing from China and elsewhere into Western Treasuries and gilts and so on"
The third is political, and it is the thread he returns to later in the interview. "It has to do with the political situation that we cannot see the kind of resolution putting the track partially back on the rails, the way we used to see recurrently every 10 years or so in most democracies"
He summed the list up as "So there are a bunch of things pushing up rates," then added the Treasury's own talk of selling dollars to support the yen, which he said "doesn't help either"
3. A Credible Dollar Threat
Hepker asked whether Bessent's comments on the yen were a warning about what he might do next or a defense of what he had already done.
Posen would not guess at the intent: "It's a fair question. I'm not sure I know"
What he was certain of is that the Treasury can do it if it wants to. "What I do know is if he chooses to degrade the dollar, and let's be very clear, that's what we're talking about, he can do so"
The asymmetry is that weakening a currency is the easy direction. "I mean, it's hard for the Japanese to defend the yen. It's hard to defend a currency under attack. It's always easy for a finance minister or Treasury Secretary to weaken a currency. So it's a credible threat in that sense"
Being able to do it is not the same as it working: "It's very short-sighted because weakening the dollar isn't going to help anything"
4. Why Push the Dollar Down
Hepker pressed on motive — why do it at all — and Posen said the question was fair, adding that Bessent had been saying the same thing.
His first explanation is that the policy is coming from the White House rather than the Treasury. "I think it's some weird combination of the president wants something and the cabinet snaps to attention and says, yes, sir, we'll get it done"
His second is that it is negotiating position. Posen said the aim is to "set things up ahead of the Xi-Trump summit so they can ask China to do some things to strengthen its currency." The pitch to Beijing, in his account, would be that other Asian currencies have already strengthened — he named the yen and the Korean won
He expects the strategy to produce the opposite result. "And I think it's frankly just bad judgment on the part of U.S. Treasury in this administration that they think they're going to suit their goals by pushing down on the dollar, and it's going to backfire"
5. The Mercantilist Mistake
Asked what the administration is actually trying to achieve — better net exports, or something wider — Posen laid out the case the administration makes, then said why he thinks it fails.
He attributed the view to named people rather than treating it as a straw man. "I mean, there is this school of thought that Vice President Vance has spoken of, Secretary Bessent has spoken of, people associated with the administration have spoken of, that it's kind of like something said about the pound in the city of London, that by having the dollar be overvalued, by being a place where capital is attracted to, it distorts the economy"
In that account, an overvalued currency makes net exports harder and works against manufacturing
His first objection is that the manufacturing damage is overstated. "Manufacturing actually has been going up the value chain consistently for a couple decades now, so that's not the issue"
His second is that the trade-off runs the other way once you count everything. "Or it's mistaken because on net, the virtues of having lower inflation and lower capital costs for the economy as a whole and a lower interest bill for the U.S. government outweigh these issues"
He named the underlying instinct plainly: "But that's the kind of thinking behind it is this mercantilist, well, we got to get the trade deficit down"
6. Corruption and Denial
Hepker read back a line from a piece Posen had written recently, in which he said the US judicial and congressional branches had accepted "overtly corrupt self-dealing and threatening extortion" as the Trump administration's practice at home and abroad. She asked whether that view, obvious enough from Europe, is widely held inside the United States.
Posen stood by the line and said Europeans are reading it correctly. "Thank you for reading. I'm sad to say Europe's right to accept the view. And there's a lot of denial in the U.S."
He cited a panel he had recently shared with the University of Chicago economist Luigi Zingales: "I was at an event recently where I was on a panel with Luigi Zingales, a very famous economist at U Chicago Business School"
The comparison Zingales draws is to other countries, and Posen said he agrees with it. "And he is very big on pointing out how bad the corruption has gotten in the U.S. and put it in an international context, meaning that it starts comparing to his native Italy in the past or Turkey today or things like that, and I support those views, unfortunately"
He described two kinds of denial — people who do not want to believe it, and people who feel they have no choice but to go along and so will not criticize it
The third kind is the one he called most important, and it is about voters rather than elites. "But I think the most important denial is among average voters who feel that everybody's corrupt, just the Trumpies are a little more obvious about it"
7. Watch the Texas Senate Race
Asked whether a reckoning arrives at this year's midterms, Posen said he hoped so and then named one race as the test.
He framed his own position as non-partisan before answering. "I would like to think so. Again, I'm not partisan, but I don't like seeing my government be corrupt and bullying. So I would like to see that kind of reckoning"
The test case is the Texas Senate contest, because the two candidates differ on exactly this issue. "Talarico, the Democratic nominee, clearly has a clean record, at least as far as anybody knows. Whereas Paxton, the Republican nominee, clearly has a record of abuse of power and corruption documented"
He pointed to a fresh defection: "And we just had a Republican, I think it was a public prosecutor, come out and endorse Talarico overnight"
He hedged the read-across from any single contest, saying any one election or any one state's election can turn, but "But I think watching, for example, the Texas Senate race will let us know how people react"
Hepker noted on air that no one from the Trump administration or the Republican Party was on the program to answer allegations that strong, and set the point aside before moving to Europe
8. Populists Wreck Budgets
Hepker asked how serious Europe's fiscal problems really are, noting the French presidential election ahead, that markets are not disorderly at the moment, and that far-right parties have gained ground in Italy, Germany and Spain, where she named Vox.
Posen's first point, drawing on an earlier discussion on the program about Argentina, was that this is not a left-right question. He said that if you look at it "econometrically, evidence-based, as you say, both kinds of populists are bad for fiscal sustainability"
The bigger damage is done by the swing itself, not by either side's program. "And more importantly, if you have governments that pendulum swing between extremes and you tend to have less obeyance of rule of law, less obeyance of budgeting process, less compromise. So this is a bad scenario"
On which way the causation runs, he declined to pick: "What's chicken and what's egg? That you're running out of fiscal room and that makes people unhappy versus people's unhappiness causes the fiscal problem. It's not clear. I think it's two ways"
The mechanism he says has stopped working used to arrive on a rough cycle. "There has been this sort of self-regulating mechanism that roughly every 10 years or so it's in the data." What it produced, he said, was a cross-party correction: "Usually, you would get some kind of what we would call in the U.S. bipartisan or in other countries coalition government kind of move to put things somewhat back on the rails," normally a mix of tax rises and spending cuts
He was explicit about how little that fix achieved: "Wouldn't fundamentally fix fiscal, but would normally get things on a decent path for several years"
His claim is that no G7 democracy has done it in nearly two decades. "But since 2008, we just haven't seen that dynamic really kick in in any of the G7 democracies except maybe Italy," and he noted "In fact, Italy's been running a primary surplus for a while"
The exceptions prove costly: "Again, Italy is actually a positive exception, but they had a crisis. But Greece is a positive exception, but they had a crisis"
He left open whether the cause is events or politics, and split the countries: "And so, again, the question is, is that circumstance because you had COVID and the financial crisis or is that a political breakdown? And in the UK, it's harder to say a political breakdown. But in France or US, it certainly looks like it"
9. The Cost Without a Crisis
Hepker raised Greece, where she said wages remain very low and the effects of the crisis on ordinary lives are still visible. Posen agreed and used it to make his closing point.
Calm markets are not evidence that nothing is being paid. "And again, the fact that you don't have an overt breakdown disorderly markets, as you put it, is not the same as this is costless, right?"
The cost shows up as years of higher interest payments squeezing out other spending. "You can have an extended period of higher interest rates and higher interest payments, and you crowd out more positive private investment," he said, applying it to France, the United States, the United Kingdom and other major economies
Public spending gets squeezed the same way: "You crowd out more useful government services to pay interest and pay defense. And people suffer as a result"
His analogy for the outcome is a long grind rather than a rupture. "It doesn't mean that the world breaks down and you can't sell your bonds, but it's like the 70s and early 80s. It's a period where you are putting a burden on average people"
Bonus Insights
Hepker asked for "an evidence-based conversation" about Europe's politics, and Posen answered in those terms throughout — econometrics, what is "in the data," and named country cases rather than ideology
Posen thanked Hepker for having read his written work before she quoted it at him: "Thank you for reading"
Carroll asked the opening question on oil and handed the rest of the interview to Hepker, who took it from bond yields through to Greek wages
Posen's bottom line is that the Treasury really can weaken the dollar and should not, because the mercantilist case for doing it does not survive contact with the evidence — and that the larger problem across the G7 is a political one, in which no democracy except Italy has managed the cross-party budget fix that used to arrive about every decade, leaving voters to pay for it slowly through higher interest bills rather than suddenly through a market break.
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