Donald Trump has said he will approach financing the US government as if it’s one of his failing casinos.
He said on CNBC on Thursday that as president he would find ways to renegotiate the public debt and pay less than 100 cents on the dollar if the economy went bad.
“I’ve borrowed knowing that you can pay back with discounts,” he said. “I would borrow knowing that if the economy crashed, you could make a deal.”
Some corporate finance deals really do work like this: You issue risky debt, and the lenders know you might not be able to pay them back in full if something really bad happens. But that kind of debt bears a high interest rate, because the lenders know you might not be able to pay them back in full if something really bad happens.
US Treasury bonds have very low interest rates because investors are extremely confident they will be paid in full, even in poor economic conditions. Trump – by openly saying that he would keep partial payment on the table as an option – could spark a crisis in the Treasury markets if he became president. Investors would cease to see Treasurys as a safe asset, and they would demand higher interest rates in exchange for risk.
This, of course, is a terrible idea, and a good reason for Republicans to hesitate in coalescing around Trump. Do they really want manufactured economic crises to be part of the Republican brand?
Well, judging by their behavior during the 2013 debt-ceiling crisis, some of them do. This particular desperate measure floated by Trump is novel, but he is not the first Republican to advance the idea that usual concerns about prudence and risk can be thrown out the window because the country is already a smoldering garbage fire.
It has been common for years for some Republicans to talk about America’s debts as unpayable. Starting from that incorrect premise, Trump is only adding the insight that if you’re going to default anyway, you might as well borrow what you can while you still have access to the credit markets.
But saner Republicans, the ones who knew all along that America faces a debt problem but not a debt crisis and who talk of nonpayment as irresponsible, should be horrified by what Trump says when he puts on his CFO hat.