Friday, May 06, 2016

Trump: I'll Reduce The National Debt By Defaulting On It

by JASmius

Sorry, Trumplicans, but that is what "getting creditors to accept less" means.  That's the definition of bankruptcy.  Now if Captain Combover was coming right out and saying, "We're broke, everybody knows we're broke, so let's just admit it and get it out on the table in full public view and admit that this $19.2 trillion is never, EVER going to be repaid" - putting reality in a "straight-talk" context - that would be one thing (although still destructively reckless).  But that isn't what he's doing; he's dishonestly depicting it as a "brilliant deal" that ONLY HE can pull off, when the truth is that none of our creditors - and remember that a quarter of our debt is held by other countries, Red China prominent among them, so there's an ever-present national security aspect to this - are ever going to buy it, and are quite likely to react in, shall we say, less favorable ways:

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.

In other words, default.  Or, in non-financial terms....

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

"If"?  First of all, it crashed seven and a half years ago and has never recovered.  Second, his promised global trade war would carbonize the wreckage.  Third, after ANOTHER crash, exploding the debt even more and faster than it has been already, who would be daft enough to issue us more credit cards?  Shinola, what does he think the three rounds of "quantitative easing" were all about, and why does he think the Fed holds a quarter of that 19.2 tril?

There's another devastating consequence that I'll touch on below.

He added, “And if the economy was good, it was good. So, therefore, you can’t lose.”

"Money for nothin' and chicks for free".  Standard Trump conman BS.

Now let us return to reality:

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.

Experts also described Trump’s vaguely sketched proposal as fanciful, saying there was no reason to think America’s creditors would accept anything less than 100 cents on the dollar, regardless of Trump’s [alleged] deal-making prowess.

“No one on the other side would pick up the phone if the secretary of the U.S. Treasury tried to make that call,” said Lou Crandall, chief economist at Wrightson ICAP. “Why should they? They have a contract” requiring payment in full.

Yeah, let's run the United States government like Trump University.  Brilliant!

You know that other devastating consequence of Trump's "don't call it default" default?  He actually unwittingly described it in the same interview:

“We’re paying a very low interest rate. What happens if that interest rate goes up two, three, four points? …We don’t have a country.”

No shit, Sherlock.  And you know what your "getting creditors to accept less" scheme would accomplish?  Skyrocketing interest rates:

Why does the U.S. get a very low interest rate? Because U.S. debt is secured by the “full faith and credit” of the United States. What does that mean? It means that the United States is legally obligated to find someway to pay the debt. What is the quickest way to increase the interest rate by several [snicker] points?....That would be to tell your creditors that the debt they are buying isn’t guaranteed to be repaid in full.

For starters.  The ChiComms just might come to "collect" in person.  Much of the non-overseas and non-Fed creditors are either State and local governments (through pension funds and the like), which are in no better financial shape, or....the private sector - banks, insurance companies, personal IRAs, 401(k) plans....basically, the American people whom he's trying to swindle into electing him.  Boy, the delicious ironies from this guy just don't stop, do they?

But this isn't a joke.  This is deadly serious.  The United States government isn't Trump Air, Trump Steaks, Trump Wine, Trump Mortgage, Trump Vodka, Trump Casinos, Trump Magazine, or Trump Freeze Dried Poop.  Or, at least, it's not supposed to be.

And it cannot be, because the consequences would be disastrous:

Trump’s statement might show the limits of translating his "business acumen" into the world of government finance. The United States simply cannot pursue a similar strategy. 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. [emphases added]

You know what this sounds like to me?  The Democrat Financial Logic Bomb (i.e. Panic of 2008) that gave us Barack Obama and the death of the Old American Republic, only far less insidious.  Is Trump advertising that he plans to collapse the U.S. government and economy, or is he really this f'ing stupid?

There's one more cataclysm that would come from this Trump "don't call it a default" default scam: Ending the U.S. dollar's status as the Global Reserve Currency:

“Then the problem becomes how are we the world’s reserve currency anymore? We get away with a lot of shit because people think we have a stable system. But if your banker comes in one day wearing a diaper, speaking gibberish, you’re going to pull your money out of that checking account. So that has a huge potential impact on our ability to protect our economic strength. We borrow a lot of fucking money. Because people think the number one safest instrument in the world is the U.S. Treasury bond. And if we start making reality-show clowns in charge? Run on the American bank. You think the pissed-off steelworker in Akron has trouble now? Wait until we have a financial collapse and they take 25% off the dollar. He’ll be serving hot dogs in an American restaurant in [Red] China.” [emphases added]

But, hey, that's what forty percent of "Republicans" wanted: an "outsider" who would "shake up the system" and "tear it down".  That pissed-off steelworker in Akron with the "Make America Great Again" ballcap never bothered to stop and consider whether he would be part of the collateral damage, and just where his hero would be "bringing his biggest-hammer down," and on what.

Maybe Trump should have been Obama's Treasury Commissar.  This crazy default proposal is just what his coup de tat would need.  Or has The Donald just spilled it?

Exit quote from AP:

You can game this out yourself. The U.S. gets away with offering low interest rates on its debt only because creditors believe repayment is certain. What happens to demand for treasuries if that certainty evaporates? Some creditors might be willing to take a chance on new, riskier U.S. treasuries — in return for a higher interest rate, of course. Others would flee the market. Suddenly we’d have steeper interest payments to make on new debt and fewer entities willing to lend us money to make those payments. It’d be the junk-bond-ification of U.S. government securities. What sorts of social and political consequences would flow, do you imagine, from the government suddenly running out of money to cover its multitude of obligations? Here’s a hint: You know how Trump likes to say that he’ll protect entitlements? Let’s see what he says about that after he’s turned America’s credit rating into garbage. A Twitter buddy suggested a new slogan for his campaign in light of this story: “Make America Greece Again.” [emphases added]

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