Trump (again) suggests renegotiating US debt

May 2013
18,850
18,465
N Oregon Coast
#4
It's funny, this latest TrumpTweet, b/c I was just suggesting on another thread that today of all days we should just treat one another respectfully in Rememberence.
I guess Trump is going another way.
Undoubtedly after his lunch of Chicken McNuggets, he'll re-up his Twit war with Chrissy Teigen. :confused:
 
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Jul 2007
76,401
67,352
So. Md.
#5
If the government asked investors to accept less on the dollar than they are owed, it would be phenomenally bad for the economy.

"There are no merits to it," Strain said. He added, "The extent to which U.S. Treasurys are kind of the foundation on which the global financial system is built is really hard to overstate."

For one thing, it would send interest rates on Treasurys soaring and destroy the U.S. Treasury's risk-free status. That's what Strain means by "foundation"; right now, everyone knows and trusts that U.S. debt is a safe investment. Treasurys are used in all sorts of financial transactions worldwide. They're in many people's retirement accounts as a low-risk asset. Rattling faith in that Treasury would introduce massive amounts of uncertainty into the economy.

Plus, it would cause interest rates on U.S. debt to soar. That would mean higher borrowing costs for the U.S. government — making the very fiscal situation Trump is worried about even worse.

All of this could dry up credit markets, as the uncertainty could make banks far less likely to lend money. Cut back on borrowing and lending, and you deliver a huge blow to the economy.

It's not even clear how this idea would work, says one financial expert — creditors wouldn't have much of an incentive to take the deal, with the U.S. currently on firm financial footing.

"Typically the goal of a sovereign default is for a country to reset its borrowings base in order to make sure it can be fiscally sustainable going forward," said Guy LeBas, chief fixed income strategist at Janney. "And creditors or lenders have an interest in participating in that process, because they believe they can get the best return from negotiation."
So if that's what Trump wants, how would this work? It's a complicated proposition, but Dean Baker at the left-leaning Center on Economic and Policy Research explains in a blog post:

"If interest rates rise, the situation Trump described, the market value of long-term debt falls. For example, a 30-year bond issued in 2015 at an interest rate of less than 3.0 percent, might sell for less than 70 percent of its nominal value if the long-term interest rate crosses 6 or 7 percent, which it certainly could.
"The Treasury could buy up long-term debt in the market at its current market value, and replace it with new debt that paid a higher interest rate. This won't change the interest payments owed by the government, but it would reduce the nominal value of the debt outstanding."​
Long story short: It would lower the debt level but raise the interest rate the U.S. is paying altogether, essentially trading one problem for the other. Why would we do that? In Baker's telling, this is a solution only insofar as someone cares a lot about nominal debt levels and debt-to-GDP ratios (and it's not clear that Trump does).

As LeBas told NPR, unless somehow the U.S. were running a surplus, buying back debt at a discount wouldn't do much good.
Donald Trump's Messy Ideas For Handling The National Debt, Explained
 
Apr 2007
52,489
40,200
Location
#6
Donald says The Fed should lower interest rates to zero (or less). And apparently he STILL thinks the sleazy tactics he used whilst stiffing hundreds of contractors in in his personal business will work on China, Japan and the rest of our debtors. Finishes off by calling Jay Powell a "Bonehead".

What a clueless dweeb :smirk:


What a clown.

But the even bigger clowns are the people who support him (or "don't support him" but like how he owns liberals) who just three years ago were all about fiscal responsibility and paying your bills...you know, conservative thrift.

Now they've got this jamoke from Queens who's spent his life one step ahead of bankruptcy making taxpayers live that way.
 

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