http://www.weeklystandard.com/donald-trumps-plan-to-destroy-the-u.s.-economy/article/2002296Donald Trump's Plan to Destroy the U.S. Economy3:33 PM, MAY 06, 2016 | By JIM SWIFT
Donald Trump, who has never ever gone personally bankrupt, has a plan to attack our mounting national debt: stiff creditors.
Trump, of course, has lots of experience with this. Being a Trump creditor is only a slightly better position to be in than a degree holder from his failed "university" or an affiliate in his multi-level vitamin marketing scheme. Aside from casting aside GOP competitors, Trump specializes in navigating the doldrums of bankruptcy.
Which is why it's a natural thought for him to think we can just write down our national debt.
It's odd for the candidate who promises, seriously, to eliminate the $19 trillion national debt in eight years—without reforming entitlements—to tell America's creditors (read: mostly Americans) to accept less than they were promised.
If it weren't a sad-but-true situation, that could be a more honest Trump campaign slogan: Accept Less Than Promised.
Seniors, of course, being savers, would bear the brunt of a Trump debt writedown—if such a thing could happen. But the real losers would be, well, everyone. Were Trump elected, ignoring the market shocks that the likelihood of that would bring, signalling that the U.S. might hedge on repaying its sovereign debt in full would be, effectively, a default on our debt. That's something that would make even Ted Cruz blush.
One of the beautiful parts about the American financial system is its effort to distance politics from monetary policy. The Federal Reserve is accountable to Congress, but only to a point. Giving Congress, or the president (Trump or not), complete control of the levers of our economy would be a disaster. It's easy, and not entirely wrong, to hate on the Federal Reserve, but its independence is true to the spirit of a divided government.
Still, Congress and the president aren't powerless. They have their levers. And they can cause an immense amount of damage.
What's so scary about Trump's suggestion that we can write down our debt is how it attacks not our debt, but the underpinnings of the world economy. Trump, for better or for worse, is an America-first nationalist, and a non-interventionist. But he has it backwards. By taking this position, he not only fails to put America first, but would intervene in the world economy against its interests.
Anyone who has taken a basic finance course can tell you about the Capital Asset Pricing Model. Boiled down, it's the theory that defines the balance between risk and return. U.S. Treasuries, for better or for worse, are considered "Risk Free Returns" in that the U.S. Government has a close-to-zero record of not paying out, thus little to no risk.
Somebody, anybody, with capital has to weigh their investment decisions against just putting the cash in U.S. Treasuries, which is akin to doing nothing. If doing nothing yields a return of X percent over a certain period of time, and investing in widgets yields a riskier return over the same period, you have to consider the baseline of Treasuries.
It's time value of money compared with risk. That's why giving the feds your cash is usually a safe bet: They have a pretty decent record on risk. The New York Times points out the costs of an oversight:
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.
In 2011, federal borrowing costs climbed as congressional Republicans refused for a time to increase the federal government's statutory borrowing limit, raising doubts about the government's ability to repay its debts. The Bipartisan Policy Center calculated that the higher rates will cost taxpayers about $19 billion.
Change the nature of that risk, you've changed the world economy overnight. If U.S. Treasuries are the life raft of the world economy, Donald Trump not only kicked out the women and children, he's knifing the plastic, sinking the life raft.
