Trump the Debt

Needless to say, Donald Trump has expressed some odd ideas on the US national debt. He has argued that we can’t afford this or that because we are 19 trillion in debt, promised to pay back the debt in 8 years, & asserted that the debt is no big problem (one out of three right is not bad for Trump). But now he’s gone and done it — twice.

Many people are focusing on Trump’s interview with CNBC including “I would borrow, knowing that if the economy crashed, you could make a deal.” This statement is a major threat to the world economy. It is also forbidden by the US Constitution Amendment 14 Clause 4 “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. … ” This partially repealed the 1st Amendment protections of freedom of speech and the press. Trump violated the constitution. Josh Marshall (once a history graduate student) noted this.

It’s also absurd. The US Federal Government doesn’t have to renegotiate or repudiate dollar denominated debt, since it can make as many dollars as it pleases (the Fed is independent exactly as long as it pleases Congress that the Fed be independent).

But I am interested in another amazing TV interview

On Fox (no link) Trump told Bret Baier (as quoted by Greg Sargent link)

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. [snip]

Uh no Donald. You have extensive experience with debt, but the US Treasury can’t refinance. Standard mortgage contracts have the feature that the debtor can repay the principal at any time. But Treasury bonds, notes and bills do not have this feature. If the Treasury wished to refinance, it would have to buy them on the open market. It could then issue new bonds, notes and bills. There would be no point. The decline in interest rates since the time the bonds were issued implies a capital gain for investors who own the bond. It doesn’t imply that the Treasury can get extra money by buying and selling bonds.

Trump doesn’t understand the concept of a bond. They aren’t mortgages. They aren’t debt contracts including the right to prepay.