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May 06 2016

Trump Floats Partially Defaulting on the National Debt

If Donald Trump is elected president, we won’t have to wait for him to impose his massive tariffs to see the economy collapse. The bottom will fall out the moment he is declared the winner, because the USA will instantly become an economic pariah. Who is going to do business with a country led by someone like this?

One day after assuring Americans he is not running for president “to make things unstable for the country,” the presumptive Republican nominee, Donald J. Trump, said in a television interview Thursday that he might seek to reduce the national debt by persuading creditors to accept something less than full payment.

Asked 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.”

Running the economy from the White House is simple. It’s just like running a failing casino. When the debts pile up, simply declare bankruptcy, like Trump has done four times.

It would be impossible to overstate the economic significance of Trump’s remarks. Here’s an understatement:

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.

Even Trump understands that rising interest rates could be a big problem for a country over $19 trillion in debt. But apparently he has not considered the effects on interest rates of having a president who makes clear that he regards repaying debts as negotiable.

As usual when the grownups react with horror to his latest pronouncement, Trump tried to walk it back — sort of:

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.

Uh huh. Partial default.

I don’t think the Chinese will like this any better than the massive tariffs Trump plans to inflict. But off course, Trump and his followers don’t like the demonized Chinese either. Some may even believe that a trade war with our #2 trading partner would somehow benefit the economy.

Grownups want to deal with the debt through decreased spending and increased revenue. Trump would rather offer everyone free ice cream, then when the bill comes due, skip town.

A quick economics lesson for the Donald:

The government runs an annual deficit, so it must borrow to retire existing debt. Any measures that would reduce the value of the existing debt, making it cheaper to repurchase, would increase the cost of issuing new debt. Such a threat also could undermine the stability of global financial markets.

The economic damage caused by our current leadership has been mitigated by the dollar serving as the world’s reserve currency. How long would that last with Trump in the White House?

Economic Armageddon.

On tips from Varla and Torcer.

43 Responses to “Trump Floats Partially Defaulting on the National Debt”

  1. marcus tullius cicero says:

    …Trumpf will not need to build a wall, all the freeloading illegals will leave, the US is broke!

  2. mesopotamiancrow says:

    I guess instead we should cut entitlement spending by about 60 percent which would make our finances a little more sustainable at the cost of rioting and social chaos. Which would also be bad. Or we could raise taxes to pay down the deficit, which would crush the working class utterly and then…rioting….chaos. I would rather stick it to the banks instead of ourselves at least this one time although it will still not end well.

  3. Henry says:

    You do realize that renegotiating debt repayment happens everyday, all day long in the US, yes? EVERYONE does it… I wouldn’t be surprised if Ted Cruz renegotiates the debt service on his $500,000 loan from Goldman Sachs.

  4. Donna M says:

    Ben Rhodes admits the Wormwood”s State Dept deceived and lied about The Iranian State being “moderate”!
    Of course, they never were moderate!
    They’re still the same “ol’ killa’s”, we’ve known them to be, all along!
    …and the State Dept knew it, too!

  5. GhostRider2001 says:

    Not the US Government……. Repurchasing debt at a discount is something that healthy businesses do to deleverage in good times. Businesses that are in distress (like Trump Hotels and Trump Entertainment back in the day) usually renegotiate debt to avoid going bankrupt and to salvage what they can of the bond holders’ investments to keep them from losing everything. Business usually get in this condition because of bad management (as in the case of Trump’s publicly traded companies) or poor business models. The US Government needs to go on a diet badly, and stop pissing away money on stupid stuff. Sadly, neither candidate has any serious plans in this area other than to steal more money from taxpayers. Maybe Trump’s new Goldman Sachs money man can help Ted Cruz out too in the spirit of unity.

  6. GhostRider2001 says:

    Trump, in short, is proposing a bankruptcy maneuver for the US Government. However, with the chronic deficits the government runs where are they going to get cash to do this except by cranking up the printing presses? Sounds like higher interest rates and more inflation are in store with a Trump Presidency as people lose faith in the US Government’s ability to honor their obligations.

  7. 762x51 says:

    Of course he does, intimidation, deceit, default and bankruptcy are his primary business tools.

  8. Henry says:

    I was actually returning to add that I was incorrect and it is not “everyone” who renegotiates their debt, but a great many do – businesses and individuals; you are certainly correct that the US govt. has not renegotiated its debt, and nor do I wish them to. However, calling it “partial default” is not only technically inaccurate, it’s connotative of failing to make contractually obliged payment – renegotiating a different payment, as consented to by both parties, is not the same as failing to make payments.

    It’s funny you mention Mnuchin; I actually knew him from the same social
    circles, mainly his ex-wife, maybe 30 years ago… he’s definitely a
    choice Trump would make! Almost choked on my coffee when I saw that on
    Drudge this AM. Yeah, he’ll probably take care of Ted’s debt too…
    these guys all stroke each other.

  9. 762x51 says:

    A period of deflation is right around the corner followed by a period of hyper-inflation. Government is poised to force you to do all your transactions digitally. With no currency in your pocket, you become their slave.During that time, bank “bail ins” and “negative interest rates” will sweep the country igniting a second civil war. I have no idea on the timing but the events are already in motion. It will happen, there is no way to avoid it now.

  10. 762x51 says:

    How do you propose to “stick it to the banks”?

    Pop Quiz 1:

    The majority of wage earners get paid in what form?
    A. Check
    B. Cash
    C. Direct Deposit to their bank account
    D. Barter in the form of Goods or Services.

    Pop Quiz 2:

    The majority of Americans pay their monthly bills, house payments, rent, utilities, car insurance, etc. in what form?

    A. Cash
    B. Credit Cards
    C. Paper Check
    D. Barter for Goods or Services.

    Pop Quiz 3:

    Of the available choices from POP Quiz #1 and # 2 above, banks control how many of those avenues of payment either debit or credit?

    A. None
    B. All
    C. 3 out of 4
    D. What’s a debit?

    My point is, “sticking it to the banks” is an impossibility except in a full on civil war where those institutions are burned to the ground and their staff executed. After that war is over, you will still need a banking system in order to have an economy that is not strictly a third world barter system. You cannot run a modern, industrialized nation without them.

  11. Eleanorjsteele says:

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  12. labman57 says:

    Uh, Donnie … unlike you and your business ventures, the United States cannot declare bankruptcy in order to shield itself from its debt obligations.

  13. Mr. Freemarket says:

    As long as the government keeps handing out “free” money and services, we ain’t broke.

  14. Mr. Freemarket says:

    Actually, cutting entitlement spending is a great idea. Entitlement spending has effectively destroyed the black family, giving black kids a bleak future. So, announce that, as of x date, additional children will not increase the amount of money the government provides to single mothers. Further announce that, in order to receive “free” benefits, one has to work a minimum of 20 hours a week.

  15. Mr. Freemarket says:

    Generally one renegotiates debt to obtain better terms on that debt….lower interest rate, longer terms, etc. With the low rate of interest that the government already pays, there isn’t much room for renegotiation.

  16. AlecJ says:

    Donald is like a spoiled child who doesnt understand that in the big boy world….he cant just make declarations that change the rules of finance or economics.

    The man is of low intelligence and no principles.

    What is wrong with the voters in this country?

    First 8 years of Obama….now this?

    I cant express the utter frustration i feel for this nation.

  17. Absolutely correct.

  18. Occam's Stubble says:

    As much as I dislike Trump, don’t you think government got into this condition the same way businesses, do? I’m not sure I like this plan but at least it’s a plan. Government has proven time and again that it will not or cannot control spending. Maybe if US treasury bills stop being such a good investment, people will stop buying them and government will be forced to control spending. Is this not preferable to the Grecian problem that’s looming for us?

  19. Occam's Stubble says:

    True but I don’t think you need the Federal Reserve system of national banks. You can do most of what you need using local banks.

  20. Occam's Stubble says:

    Someone needs to put together a priority cut list. Start with useless shit such as arts funding and public broadcasting. Then move on to unnecessary federal departments like Education and Energy. Last on the list should Social Security, Medicare, and defense.

  21. Mr. Freemarket says:

    The truth is that people have already stopped buying treasury bonds. Now, treasury bonds are largely bought by the Federal Reserve. In 2011, the Fed was already buying 61% of all treasury bonds.

    One has to wonder where the Fed gets all that money from to buy all those treasury bonds. Almost like they have an endless supply of money….

  22. Mr. Freemarket says:

    Obama started negiotiating with the Mullahs soon after being elected, before any “moderates” were elected.

    I guess ValJar wants better relations with her homeland.

  23. Mr. Freemarket says:

    If and when it does, the value of the US dollar plummets.

  24. Mr. Freemarket says:

    Yet social security and medicare make up a huge portion of the federal budget. And they are perfect justification for robbing future generations to pay benefits to current beneficiaries. But then again, the promise is that the future generation will be able to rob their children in turn.

  25. Occam's Stubble says:

    The problem is that if you even mention making cuts there, you get voted out of office. The only sensible plan is to slash spending to the bone and once you’ve gotten rid of every cowboy poetry festival and crucifix in urine, you can then begin looking at those big boys and make the case that something must be done.

  26. Occam's Stubble says:

    I guess the Fed will be the first one Trump brings to the table then. Ha!

  27. Rotohammer says:

    I don’t know much about this, but I was hoping for an even softer landing. US finance has been referred to as a “confidence game”, I guess meaning the world needs to value the dollar and US treasury notes to keep it going. In the meantime, I’m hoping for a government that would stop the deficit spending and start paying down the debt gradually. We have record revenues. Revenues could be even higher with greater employment. It’s hard to get elected on that platform though, with too many gimme-dats voting.

  28. Rotohammer says:

    Kids with too much freedom to misbehave are actually less happy than kids with structure and discipline. Our petty politicians have far too much spending freedom, and they will be happier if the constitution could be amended to take all that away. Then they can be petty about things other than buying votes with taxpayer money.

    I would love a real balanced budget amendment to the constitution. One that takes away the government’s freedom to spend more than it takes in (with exceptions for extreme circumstances, e.g. WWIII or the Yellowstone volcano).

    It should have strict controls around taxation, with pre-made formulas on how rates can be raised and when they must be lowered. A flat tax or fair tax should go along with this, because the IRS code is unworkable.

    Take all that freedom out of the hands of politicians. They can argue over how to slice the pie for military, infrastructure, and hand-outs, but the size of the pie should be controlled by the constitution.

  29. GhostRider2001 says:

    His plan is something you’d expect to see in the third world when governments can’t pay their debts, though Puerto Rico may be headed down this path soon. US Treasury bills are already pretty poor investments in terms of interest paid. However they are still considered the safest in the world. US citizens should not want to live in a world where US Gov’t debt is less than AAA rated. However that is where we are headed because politicians gain power and votes based on the taxpayer dollars they can divvy up to their cronies (like the Donald) and the gimme voters. The only way we will get a less corrupt government is by taking money out of the hands of politicians, not by giving them more OPM.

  30. 762x51 says:

    I agree, there are clearly better systems than “the Fed” but the Jekyll island group wasn’t trying to create a great system for the benefit of the general public. Any financial system that arranges it so they are immune to audit is a bad one. if they were on the up and up, they would agree to an audit even if wasn’t required by law. Their refusal is proof that they are hiding something.

    I was just showing how it is impossible to have an economy without banks. Burning down the Fed is different than burning down your local credit union. These people want to go overboard and destroy everything. Banks, GOP and its founding principles, etc. That is a different goal than destroying the people and systems who are creating the problems and re-establishing the Constitution and the rule of law.

  31. feralgrognard says:

    Moonbattery will spend a vast majority of its time
    deliverying Anti-Trump rants and rages, while intellectually, failing pointed out here SHILLARY and Obama inspired march towards another socialist failure in their G** D*amn America Progressive crusades

  32. Skip says:

    I have to believe there are quite a few Obama voters that hang out at this site.

  33. RRFCL says:

    ” ̶R̶u̶n̶n̶i̶n̶g̶ Ruining the economy from the White House is simple. It’s just like running a failing casino.” FIFY

  34. bobdog19006 says:

    Oh, let’s all write in Cruz this November. No….let’s all stay home and pout.

    That’ll show ’em.

    Sooner or later, we’re just going to have to notice that the choice is no longer between Trump and Cruz. The choice is Trump or Clinton. Whining about Cruz is pointless. You might as well be complaining about Ross Perot.

    I can’t think of anything worse than Hillary Clinton.

  35. bobdog19006 says:

    7.62, you’re right about that. We’re $19 trillion in debt. We can barely handle the debt service as it is.

    What happens when Obama is no longer able to use the Fed to force interest rates and interest rates return to normal? You know he won’t allow Yellin to raise rates until he leaves office, like everything else he’s done.

    Put Clinton in the White House, and she’ll keep the safety valves lashed down until the boiler explodes. If you think Trump is bad, Clinton will be infinitely worse.

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  37. […] good news is that Trump says he does not favor partially defaulting on the national debt after all. The bad news is that he also says […]

  38. […] good news is that Trump says he does not favor partially defaulting on the national debt after all. The bad news is that he also says […]

  39. […] good news is that Trump says he does not favor partially defaulting on the national debt after all. The bad news is that he also says […]

  40. […] to slow its explosive growth as a conservative would, Trump has recently suggested he would instead partially default on the national debt or pay it off by inflating the […]

  41. […] to slow its explosive growth as a conservative would, Trump has recently suggested he would instead partially default on the national debt or pay it off by inflating the […]

  42. […] to slow its explosive growth as a conservative would, Trump has recently suggested he would instead partially default on the national debt or pay it off by inflating the […]

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