Apparently for Donald Trump, the presumptive Republican presidential nominee, four bankruptcies isn’t enough. Now, he promises to bring America to the brink of bankruptcy to magically force our creditors to cancel our debt. It’s a stunning admission, one which betrays a deep ignorance of how sovereign debt works, and one that for any other nominee would sink his candidacy.
In an interview yesterday with CNBC, Trump was asked about how he would handle the national debt, Trump responded: “I am the king of debt. I do love debt. I love playing with it.” And, Trump told CNBC that means “I would borrow, knowing that if the economy crashed, you could make a deal.” However, our nation’s debt is not a toy to be played with – to be negotiated like a real estate business deal in which creditors approach the deal knowing the risk, and knowing if the deal doesn’t work out they may get less than 100% on their investment.
As Matt Yglesias of Vox notes,
“The United States of America, however, is not a real estate development company… the very assessment of risk in the financial system is based on the idea that the least risky thing is lending money to the federal government. If that turns out to be much riskier than previously thought, then everything else becomes much riskier too. Business investment will collapse, state and local finances will be crushed, and shockwaves will emanate to a whole range of foreign countries that borrow dollars.”
Of course Trump bizarrely added during the interview with CNBC that his plan was what can only be described as a ‘zero sum game’ in which we can’t lose:
“If the economy was good, it was good, So, therefore, you can’t lose.”
Experts have described Mr. Trump’s vaguely sketched proposal as fanciful, saying there was no reason to think America’s creditors would accept anything less than 100 cents on the dollar. Lou Crandall, chief economist at Wrightson ICAP, a research and investing firm said:
“No one on the other side would pick up the phone if the secretary of the U.S. Treasury tried to make that call. Why should they? They have a contract requiring payment in full.”
While Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said that she shared Mr. Trump’s concern about the size of the federal debt, she noted of our debt:
“It’s a policy problem, not a debt-management problem.”
Trump seems to ignore the fact that it is more than the just full faith and credit of this country at stake. Our currency is the world standard and attempting to renegotiate our debt will not only have a disastrous effect on our economic and political standing in the world, it will have devastating consequences for the economies of the world, which peg their economies to the U.S. dollar. – which seems at best to at odds with Trump’s campaign slogan “Make America great again!”
Ironically, this interview with Trump was just one day after he assured us in an interview with the NY Times:
“I know people aren’t sure right now what a President Trump will be like…But things will be fine. I’m not running for president to make things unstable for the country.”
Well he made it one day.
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