Donald Trump, the presumptive GOP presidential nominee, has stirred up considerable controversy by suggesting that the federal government might be able to “make a deal” with its creditors to pay less than they were owed.
Many economists and fiscal experts reacted to Trump’s comments last week with heavy criticism and even incredulity, noting that uncertainty about U.S. government debt could badly destabilize global financial markets and derail economic growth.
Trump insisted this week that his comments on the subject had been misinterpreted as calling for a federal default.
Investors in this country and around the world currently view the U.S. government’s debt as the safest possible investment. That allows Washington to borrow at low interest rates. If investors began to question whether the government would fully repay them, they would demand higher interest rates to compensate for that risk.
Citing his experience in the private sector, Trump told CNBC last week: “Look, I have borrowed, knowing you can pay back with discounts. And I have done very well.” As president, he said, “I would borrow, knowing that if the economy crashed, you could make a deal.”
Despite Trump’s attempts to clarify his proposals to “buy back” government debt at a discount, it remains unclear why holders of federal debt would voluntarily accept less than they were owed.
“The solution to our nation’s unsustainable debt outlook is to change the spending and tax policies that are producing the debt,” said Concord Coalition Executive Director Robert L. Bixby. “Asking creditors to settle for less than they are owed would not address the underlying structural deficit of current policy and would likely make the situation worse by needlessly calling into question the nation’s creditworthiness.”
External links:
Trump’s Idea to Cut National Debt: Get Creditors to Accept Less (N.Y. Times)
Experts Predict Economic Disaster From Trump Recovery Idea (AP)
Trump: U.S. Will Never Default Because ‘You Print the Money’ (CNN)
Trump’s Bizarre Explanation of How the National Debt Works (Washington Post)
Why Trump’s Debt Plan Is Reckless (CNN)
