Trump's Idea to Cut National Debt - Get Creditors to Accept Less

[Maj. Bill Martin]

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."

He added, "And if the economy was good, it was good. So, therefore, you can't lose."

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 Mr. 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 Mr. Trump's 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.

Mr. Trump told CNBC that he was concerned about the impact of higher interest rates on the cost of servicing the federal debt. "We're paying a very low interest rate," he said. "What happens if that interest rate goes two, three, four points up? We don't have a country. I mean, if you look at the numbers, they're staggering....

http://www.nytimes.com/2016/05/07/us/politics/donald-trumps-idea-to-cut-national-debt-get-creditors-to-accept-less.html?_r=0

Note to self -- don't buy any more U.S. government bonds.  They're no longer backed by the Government.

[Mechanicos]

He told truth and was pragmatic. I suspect tho this segways into his wanting to charge for arrears the countries we financially and militarily support who do not pay their fair compensation for the services we have provided. So, this can reduce the Debt owed to them by the amounts they owe us. Good Idea  when you think about it.

[sinkspur]

Trump's plan for US debt is structured bankruptcy.

Repurchasing debt is a fairly common tactic in the corporate world, but it only works if the debt is trading at a discount. If creditors think they are going to get 80 cents for every dollar they are owed, they may be overjoyed to get 90 cents. Mr. Trump’s companies had sometimes been able to retire debt at a discount because creditors feared they might default.

But Mr. 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.

In 1979, for example, what the government described as “bookkeeping problems” temporarily delayed $120 million in interest payments. In the aftermath of the delay, investors pushed up interest rates on Treasuries by about 0.6 percentage point, according to a 1989 study by Terry L. Zivney of the University of Tennessee at Chattanooga, and Richard D. Marcus of the University of Wisconsin-Milwaukee. That cost taxpayers roughly $12 billion.

Might be worth keeping a close eye on the US Policy Uncertainty Index if Trump is the GOP nominee and begins to close that wide polling gap with presumed Democratic nominee Hillary Clinton. As researchers note: “We find that an increase in economic policy uncertainty as measured by our index foreshadows a decline in economic growth and employment in the following months.”

http://www.aei.org/publication/on-donald-trump-and-economic-policy-uncertainty/

[sinkspur]

“We find that an increase in economic policy uncertainty as measured by our index foreshadows a decline in economic growth and employment in the following months.”

[sinkspur]

He told truth and was pragmatic. I suspect tho this segways into his wanting to charge for arrears the countries we financially and militarily support who do not pay their fair compensation for the services we have provided. So, this can reduce the Debt owed to them by the amounts they owe us. Good Idea  when you think about it.

Trump is not going to charge for arrears for anything.  He might negotiate something going forward, but I doubt his military advisers will encourage the remilitarization of Europe and encouraging nukes for South Korea and Japan.  That's, frankly, nuts.

[driftdiver]

" that he might seek to reduce the national debt by persuading creditors to accept something less than full payment. "

AKA bankruptcy, something he is quite familiar with.

[Mechanicos]

Let me ask you this -- do you think Trump coming out and saying this is going to make countries and individuals more, or less, willing to invest in U.S. government bonds?

I own much Treasury material. So understand where I am coming from. The current status will result in NOTHING or very little ROI as its leading to a global economic collapse. If a knowledgeable finance person goes in and trims out the cancer parts it may survive. it will not survive as it it going and I do not want to lose that much.

[sinkspur]

I own much Treasury material. So understand where I am coming from. The current status will result in NOTHING or very little ROI as its leading to a global economic collapse. If a knowledgeable finance person goes in and trims out the cancer parts it may survive. it will not survive as it it going and I do not want to lose that much.

You didn't answer the question.  Let's restate it: do you think Trump coming out and saying this is going to make countries and individuals more, or less, willing to invest in U.S. government bonds?

And, if you can, try to explain what the hell your Trumpspeak means.

[truth_seeker]

Not most current data, but it illustrates the relationships

[Mechanicos]

You didn't answer the question.  Let's restate it: do you think Trump coming out and saying this is going to make countries and individuals more, or less, willing to invest in U.S. government bonds?

And, if you can, try to explain what the hell your Trumpspeak means.

More likely to invest. Right now its a bad investment as they can lose it all very fast if it all goes to hell in a hand basket like the warning signs say it will. But if its made healthy by removing the cancers then it will be more attractive to investors. Ever notice how so many creditors extend credit to people who just filed Bankruptcy. They know that they cannot do it again for a long time. A Correction is coming, it will either be massive and maybe not survivable or controlled and survivable.

[sinkspur]

And just think of all the pension funds and teacher retirement funds that hold US treasuries.

I'm sure screwing old people in their later years never occured to Trump.

[Mechanicos]

You didn't answer the question.  Do you think Trump making this statement will make it more or less likely that people will be willing to purchase additional securities?

See, right now there we are the beneficiaries of beign the world's reserve currently -- the most reliable currency in the world.  That helps keep our interest rates lower than they would be otherwise.  But when Trump comes out and says he may force investors to take a haircut, that makes our debt less attractive.  And, as @sinkspur showed above, tends to increase the interest rates we must pay to attract lenders.

In other words, Trump being stupid enough to come out and say this is the exact type of thing that can raise interest rates if he's elected.

The Only other real competing economic government investment is China and they depend on us. So yeah. EU has nothing to compete with. Nor does anybody else. So even if we do negotiate the debt lower we still are the best and only real game in town. 

[kjam22]

Not most current data, but it illustrates the relationships

The problem is what did we do with all of the money China lent us?   We guaranteed financing of loans  for persons who could never afford or pay for a house.  We loaned out money for college that we'll never get back.  We gave it to foreign countries trying to buy a foreign policy.  We spent it on a zillion special interest pork barrel projects.   We gave it to the poor who refuse to work.   We gave it to planned parenthood.   We gave it to banks to bail them out.   We spent it on green energy.  We bought billions of dollars worth of war merchandise and gave it to radical muslims to help them overthrow sectarian regimes.   We floated it into the economy every way possible to help prop up things.  And we printed a gazillon dollars and put it in the system so that China and others would have dollars to loan us.

[montanajoe]

He told truth and was pragmatic.

Oh please. That is just brain dead stoopid

Obviously neither you or the orange haired Elvis impersonator with small hands and feet have heard of or understand the concept of the full full faith and credit of the United States government. If there is even a hint that the United States won't honor its obligations our financial markets are done..

[Free Vulcan]

He told truth and was pragmatic. I suspect tho this segways into his wanting to charge for arrears the countries we financially and militarily support who do not pay their fair compensation for the services we have provided. So, this can reduce the Debt owed to them by the amounts they owe us. Good Idea  when you think about it.

And now buddy you are definitely in my territory. Wanna crash the markets? Do what Trump suggests.

We don't have the $$$ to even pay back at a discounted rate. And we'll never be a trusted borrower ever again.

Then interest rates go vertical, and everything grinds to a halt.

Yep, smart plan there.

[Mechanicos]

Actually, no we're not.  Investors can invest in property, businesses, mineral rights -- any number of things other than government securities.  Or just hold cash.  Better that than invest in something where the guy is telling you up front that you're not going to get your money back.

Are you aware of how much of the US Stock market movement is fake? http://moneymorning.com/2015/05/19/proof-of-federal-reserve-stock-market-manipulation/

Its a house of cards now. We do not have the GDP to support our economy and are financing unsustainable debt.

I no longer invest in Govt Treasuries. Nor does anybody I know. Its too risky. Ironically my ViceX stock is doing very well...

[sinkspur]

Are you aware of how much of the US Stock market movement is fake? http://moneymorning.com/2015/05/19/proof-of-federal-reserve-stock-market-manipulation/

Its a house of cards now. We do not have the GDP to support our economy and are financing unsustainable debt.

I no longer invest in Govt Treasuries. Nor does anybody I know. Its too risky. Ironically my ViceX stock is doing very well...

So you won't answer the question.  Instead, you send us to a gold-bug website which, unsurprisingly, thinks the stock market is rigged.

You're a slippery one, you are.  Just like your boy Trump.  When you're stumped, change the subject.

[Free Vulcan]

Are you aware of how much of the US Stock market movement is fake? http://moneymorning.com/2015/05/19/proof-of-federal-reserve-stock-market-manipulation/

Its a house of cards now. We do not have the GDP to support our economy and are financing unsustainable debt.

I no longer invest in Govt Treasuries. Nor does anybody I know. Its too risky. Ironically my ViceX stock is doing very well...

And if you try and discount the debt, it will send all that into motion. Plus crash our currency, and everything else.

[Mechanicos]

So you won't answer the question.  Instead, you send us to a gold-bug website which, unsurprisingly, thinks the stock market is rigged.

You're a slippery one, you are.  Just like your boy Trump.  When you're stumped, change the subject.

I'm not alone:
http://money.cnn.com/2016/04/15/investing/stock-market-donald-trump-ted-cruz/

[Mechanicos]

So you won't answer the question.  Instead, you send us to a gold-bug website which, unsurprisingly, thinks the stock market is rigged.

You're a slippery one, you are.  Just like your boy Trump.  When you're stumped, change the subject.

I can post many more URLS if your only argument is to attack the messenger.
Try this one
http://finance.yahoo.com/news/the-fed-caused-93--of-the-entire-stock-market-s-move-since-2008--analysis-194426366.html

[Free Vulcan]

I can post many more URLS if your only argument is to attack the messenger.
Try this one
http://finance.yahoo.com/news/the-fed-caused-93--of-the-entire-stock-market-s-move-since-2008--analysis-194426366.html

Yawn. Welcome to the party pal. Understand that all you speak of hinges on one thing - the full faith and credit of the United States of America. End that and it all comes crashing down. ALL of it.

[Mechanicos]

Yawn. Welcome to the party pal. Understand that all you speak of hinges on one thing - the full faith and credit of the United States of America. End that and it all comes crashing down. ALL of it.

Like I said, I am no longer buying US Treasury Obligations. I did like my US Savings bonds from the Carter Era tho some are still are giving me double digit ROI ...

[Free Vulcan]

Like I said, I am no longer buying US Treasury Obligations. I did like my US Savings bonds from the Carter Era tho some are still are giving me double digit ROI ...

Which is superfluous to the conversation. What Trump is suggesting would be financial suicide. For the entire globe, not just us.

[Mechanicos]

Which is superfluous to the conversation. What Trump is suggesting would be financial suicide. For the entire globe, not just us.

Thats going to happen no matter what unless something is done to change it. Both Cruz and Trump agree.

[Free Vulcan]

Thats going to happen no matter what unless something is done to change it. Both Cruz and Trump agree.

Which logically leads to the fact that what Trump suggests is not the solution. We need to run surpluses and pay down the debt, not discount it.