Donald Trump is still lost in a forest of nonsense. Trump told CNN’s Chris Cuomo that The New York Times and other publications had misrepresented his previous hint at defaulting on the national debt. Bonds issued by the Treasury Department are viewed as some of the most dependable securities in the world, and if a future Trump administration didn’t honor them, the consequences for the global economy could be disastrous.
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“You never know”, he told ABC’s George Stephanopoulous. Here was Donald Trump, l’Enfant Terrible of the 2016 presidential campaign, who has offended everyone from women to Muslims to Mexicans, going where no candidate had dared to go, threatening the unthinkable: a default on the national debt.
He even said “I’m the king of debt”. The good point that he is making is that the US can not really default on its debt. I love debt, but debt is tricky and it’s risky …
Just what he was suggesting remained unclear, however.
Repurchasing debt is a fairly common tactic in the corporate world, but it only works if the debt is trading at a discount.
Now he’s saying the answer isn’t to make a deal or default – instead, it’s to “print the money”.
U.S. won’t default because it prints money Ex-McCain aide: Trump has “unstable personality” Trump bristles when pressed on Bill Clinton attacks MORE declared Monday that the United States never has to default on its debt because it has the ability to print money.
“But let me just tell you: If there’s a chance to buy back debt at a discount – in other words, interest rates go up and the bonds go down and you can buy debt – that’s what I’m talking about”, Mr. Trump said. So there never is a default. “So inflation wouldn’t offer Congress much of a way out of its deficit problems; indeed, it could make them significantly worse”, Irwin concluded.
Private firms use this strategy often to reduce their debt.
And the real estate mogul on Monday also cited his experience buying up mortgages at discount during the 2008 financial crash, while noting that managing the national debt would be a very different task.
These expenditures, added on to firmly implanted and growing welfare state managed by a political class lacking the courage required to make serious attempts at debt reduction, has always made default, in some form, inevitable.
It is extremely unlikely that any holder of USA bonds would take the sort of desperate need-cash-now approach to those investments that Trump imagines.
In fact, the liberal Center on Economic and Policy Research published a brief considering exactly this financial maneuver in 2013.
The ramifications for this are far more risky than his pointing out that the government has no real plans to pay back its debt.
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Alternatively, he said the USA government could make a Trump-type deal with its creditors to repurchase outstanding debt at less than face value, the equivalent of default. “This is the United States government”. A default would risk disrupting global markets and raising interest rates for corporate and consumer debt. “With the government, they’re never going to walk in and say, ‘Do me a favor, will you buy my debt at a discount?’ ” Trump said. Unlike many people, myself included, Trump has no frame of reference for what it means to be fiscally responsible, therefore the proposal of such an irresponsible fiscal policy is not shocking.
