Trump’s Solution to the Treasury Debt: Selling Mortgage-Backed Securities! (For federal lands.)

I would borrow, knowing that if the economy crashed, you could make a deal.

— Donald Trump, during CNBC interview, yesterday


BRET BAIER: You’ve been very clear on the stump that you oppose any reform of Medicare, Medicaid, Social Security. Yet you told the Washington Post you would eliminate $20 trillion in U.S. national debt in eight years.

TRUMP: No, no. I think what they really were referring to — I’m very good at understanding banking, debt, all of that. I’m one of the all time professionals. We can cut, we can discount, we can buy at discounts, we can see where interest rates…

BAIER: Without changing those three things?

TRUMP: No, we can discount debt. For instance, we may refinance when interest rates are so low. A lot of people think we should refinance, taking some extra money and redo the infrastructure of our country. You know, we’ve spent $4 trillion plus in the Middle East.

Fox News interview of Donald Trump, yesterday

Okay, so he would borrow, knowing that if the economy crashed, he could make a deal.  Which makes me wonder: Who will be the ones sitting across the conference table from him, their lawyers and financial advisers in tow?

I’m trying to figure this out, because I think maybe I should buy a Treasury bond, or at least a bill, or maybe just a note, which I guess would give me the opportunity to meet the president.  In a conference room, as adversaries.  But still.  Way less expensive and time-consuming than, say, becoming a bundler for the super PACs that Trump now says he’ll support.  And certainly cheaper than hiring a team of lobbyists to get my policy demands to him.

And this probably is so even though he’s now telegraphed his intention to have the Treasury partially default on these financial instruments at the first sign of a recession, which would ensure that the economy would completely crash and not recover for a very long time, thus quickly causing a full default.  I think.

But about this refinancing thing.  Which I guess is separate from the partial-default deal, although it too would involve a lot of separate deals since even the too-big-to-fail banks, even all together, probably couldn’t give a loan to the Treasury in the amount of hundreds of billions of dollars.  Or, if they could, they probably wouldn’t.  Which is something that Bernie Sanders could tell you.  If you asked him.

Anyway, I’m wondering about the collateral for these refinancing loans.  I mean, the federal government does own all that land out west that Cliven Bundy and his supporters always complain about and think should be turned over to the states that the land is in.  Or to Cliven Bundy and his followers.  I assume these lands will serve as the collateral.

But land values go up and down based on the economy in the region, and unless this refinancing deal was completed before rather than after Treasury announced its intent to default, even partially, on Treasury bonds, bills and notes, the market value of that land probably won’t be nearly enough for collateral.  And, of course, now that everyone knows that Treasury will be defaulting sometime not long after the loans to refinance are made, I don’t think those banks will be willing to risk making the loans.  After all, the lands would quickly be underwater.  (Well, the loans would be, though the lands won’t be worth much more than if they actually, literally were underwater.)

Unless … unless … the banks could quickly sell those loans (which really would be mortgages) as mortgage-backed securities.

Which I guess is the plan.


Edited for clarity, 5/7 at 7:08 p.m.  Because clarity is necessary in a post this important.


ADDENDUM: Reader Peter and I had the following exchange yesterday in the Comments thread:


May 7, 2016 2:47 pm

He’s just not that articulate and he’s saying contradictory things. It’s hazardous to guess what he mean, but I’d guess he’s pointing out that interest rates are low now, so you borrow to invest in infrastructure. Interest payments as a fraction of GDP are at low.

This is what Larry Summers has been saying, but not what Hillary or other Republican politicians have been saying.

Why did we spend $4 trillion on the Middle East when we didn’t do a good job of nation building? Should have spent that money at home.

This is why Paul Ryan won’t support him and Cheney calls him a liberal.

The government can be pretty tough when it wants to. Remember when Paulson called all of the heads of the big banks into a meeting during the crisis and told them they will take TARP?

I’m worried about Trump too but let’s remember what the establishment did. Epic housing bubble. Epic financial crisis. As Trump points out epically wasteful war in Iraq. How much money was lost during all of those disasters?

And in 2009 the CBO forecast 20 percent real GDP growth by 2015.

It’s been 10 percent.

The establishment is disastrous which lead to the rise of Trumpism.



May 7, 2016 7:38 pm

Actually, Peter, I–I–know exactly what he’s talking about. But he doesn’t. He’s heard or read that some progressive economists like Summers and Krugman keep saying that this would be a very good time for the government to borrow money for massive infrastructure needs because interest rates are low. What they’re talking about, of course, is passing laws to fund massive infrastructure projects paid for by selling Treasury bonds, bills and notes. Like how the federal government funds all its deficit spending.

But Trump hears “interest rates are low so it’s a good time to borrow money” and thinks the government borrows money in the same way that people fund real estate purchases and car purchases, and small businesses borrow money: They take out a loan from a financial institution.

How someone reaches late middle-age, after spending decades in business, and manages to nonetheless not know even the rudimentary mechanism of government-issued financial instruments—of government-issued debt—I wouldn’t know.

I consider myself borderline-ignorant about government-issued debt instruments, or did until yesterday, when I read about Trump’s comments and realized that I had considered myself unknowledgeable on the subject because I know only the rudimentary stuff—like that the government finances its debt through the issuance of them. It hadn’t occurred to me that I might know more about the subject than Donald Trump–simply by dint of the fact that I know that government finances its debt through the issuance of bonds and similar instruments, and that I know what a bond actually is.

Trump wasn’t being inarticulate, Peter.

So I think I’ll run for president in 2020.  But meanwhile I guess I won’t buy Treasury securities. Not United States ones, anyway.

Added 5/8 at 11:56 a.m.