Monday, May 9, 2016

From the lips of the presumptive Republican nominee for President ....

Over the weekend, Donald Trump said perhaps one of the stupidest things ever uttered by a major party nominee for President of the United States:

[T]he presumptive Republican nominee, Donald J. Trump, suggested that he might reduce the national debt by persuading creditors to accept something less than full payment.

Asked on Thursday whether the United States needed to pay its debts in full, or whether he could negotiate a partial repayment, Mr. Trump told the cable network CNBC, "I would borrow, knowing that if the economy crashed, you could make a deal."

He added, "And if the economy was good, it was good. So, therefore, you can't lose."

Such remarks by a major presidential candidate have no modern precedent. The United States government is able to borrow money at very low interest rates because Treasury securities are regarded as a safe investment, and any cracks in investor confidence have a long history of costing American taxpayers a lot of money....

... Pressed to elaborate on his remarks, Mr. Trump did appear to step back. He said that he was not suggesting a default, but instead that the government could seek to repurchase debt for less than the face value of the securities. The government, in other words, would seek to repay less money than it borrowed. ... 

For someone whose main alleged qualification for the office is "making deals", talking down the Nation's creditworthiness, and thus talking up the interest rate, is insanity.

Yup, it's empty.

As opposed to most of Trump's ridiculous statements, though, this one can actually matter. Let's say Trump gains on Hillary in the polls -- mightn't this add some downward pressure on bond prices and drive up interest rates up for new Treasuries?  IOW, this could actually affect debt service costs even if he is not elected.  Sure, he'll talk it back - but the message has been sent that banana republic haircut-financing is in the mind of a potential president, and it will be noticed.  

Worse yet, I am having trouble why Trump would say such a thing, even if he did believe it? How does this benefit his campaign in any way, and how would it draw additional voters his direction? Does he think some voters are so stupid that this will impress them?  Or is screwing creditors just how he does business? 

I can't imagine even a Democrat saying such a thing.

More here.  And here.