Tag: debt

Trump on Coming Debt Crisis: ‘I Won’t Be Here’ When It Blows Up

Since the 2016 presidential campaign, Donald Trump’s aides and advisers have tried to convince him of the importance of tackling the national debt.

Sources close to the president say he has repeatedly shrugged it off, implying that he doesn’t have to worry about the money owed to America’s creditors—currently about $21 trillion—because he won’t be around to shoulder the blame when it becomes even more untenable.

The friction came to a head in early 2017 when senior officials offered Trump charts and graphics laying out the numbers and showing a “hockey stick” spike in the national debt in the not-too-distant future. In response, Trump noted that the data suggested the debt would reach a critical mass only after his possible second term in office.

“Yeah, but I won’t be here,” the president bluntly said, according to a source who was in the room when Trump made this comment during discussions on the debt.

The episode illustrates the extent of the president’s ambivalence toward tackling an issue that has previously animated the Republican Party from the days of Ronald Reagan to the presidency of Barack Obama.

But for those who have worked with Trump, it was par for the course. Several people close to the president, both within and outside his administration, confirmed that the national debt has never bothered him in a truly meaningful way, despite his public lip service. “I never once heard him talk about the debt,” one former senior White House official attested.

Marc Short, who until recently worked for Trump as his legislative affairs director, said he believed the president recognized “the threat that debt poses” and he pointed to Trump’s concern “about rising interest rates” as evidence of his concern for the matter.

“But there’s no doubt this administration and this Congress need to address spending because we have out-of-control entitlement programs,” Short said, adding, “it’s fair to say that… the president would be skeptical of anyone who claims that they would know exactly when a [debt] crisis really comes home to roost.”

Recent reports have suggested that Trump is determined, at least rhetorically, to address the issue. Hogan Gidley, a spokesman for the president, noted that the president and his team have proposed policies to achieve some deficit reduction, “including in his first budget that actually would’ve balanced in 10 years, a historic, common-sense rescissions proposal.”

[The Daily Beast]

Trump told Gary Cohn to ‘print money’ to lower the national debt

As a candidate, Donald Trump pledged to balance the federal budget and lower the national debt, promises that are proving difficult to keep.

Once he won, Trump considered an unusual approach that was quickly slapped down by his chief economic advisor, according to veteran journalist Bob Woodward’s new book, “Fear: Trump in the White House,” which went on sale Tuesday.

“Just run the presses — print money,” Trump said, according to Woodward, during a discussion on the national debt with Gary Cohn, former director of the White House National Economic Council.

“You don’t get to do it that way,” Cohn said, according to Woodward. “We have huge deficits and they matter. The government doesn’t keep a balance sheet like that.”

Cohn was “astounded at Trump’s lack of basic understanding,” Woodward writes.

The vignette is one of many in the acclaimed investigative reporter’s book that describes a chaotic White House and a president being handled by top aides concerned by his behavior and decision-making.

Several people in Trump’s orbit have called the book’s accuracy into question, while Woodward has maintained several times that he stands by his reporting. In a note at the beginning of “Fear,” the author notes that the work “is drawn from hundreds of hours of interviews with first-hand participants and witnesses to these events.”

Cohn on Tuesday pushed back on the Woodward book. The former Goldman Sachs banker told Axios: “This book does not accurately portray my experience at the White House. I am proud of my service in the Trump Administration, and I continue to support the President and his economic agenda.”

Trump, meanwhile, has dismissed the book as a “scam” filled with “made up” quotes.

The president also floated an idea for making money from the recent rise in interest rates, according to Woodward.

“We should just go borrow a lot of money, hold it, and then sell it to make money,” Trump reportedly said.

The president also made clear that he was not pleased by the Federal Reserve’s current policy toward moving interest rates back to historical levels after suppressing them during the decade that followed the 2008 financial crisis. Cohn said he supported the Fed’s move to raise rates.

Trump then told Cohn that he wouldn’t pick him to be Fed chair, according to the book.

“That’s fine,” Cohn said, Woodward reports. “It’s the worst job in America.”

Trump chose Jerome Powell to succeed Janet Yellen as Fed chair. However, the president has criticized the Fed for raising rates while the economy surges.

“I’m not thrilled,” he told CNBC’s Joe Kernen in a July interview. “Because we go up and every time you go up they want to raise rates again. I don’t really — I am not happy about it. But at the same time I’m letting them do what they feel is best.”

[CNBC]

Trump Believes a Corporate Stock Market Rally Reduces Government National Debt

President Trump falsely claimed Wednesday that, “in one sense,” the stock market rally since his election reduces the $20 trillion national debt.

Let’s break down his astonishing claim.

“The country — we took it over, it owed $20 trillion,” Trump Sean Hannity of Fox News in Pennsylvania.

So far, so good. It’s correct that the U.S. owed nearly $20 trillion when Trump took office.

“As you know, the last eight years, they borrowed more than it did in the whole history of our country. So, they borrowed more than $10 trillion dollars, right?”

Also, more or less accurate — $9 trillion to be exact.

“And yet, we picked up $5.2 trillion just in the stock market. Possibly picked up the whole thing in terms of the first nine months in terms of value. So, you can say in one sense we’re really increasing values; and maybe in a sense we’re reducing debt.”

Huh? To say this is a head-scratcher is an understatement.

Trump is right that the stock market has added trillions in value since his election.

But higher stock prices reflect corporate profits. Shareholders and investors reap the rewards. When investors get richer, it does not reduce the amount of money Congress and the federal government has already spent and owes.

The national debt, which he correctly states is $20 trillion, is the result of the government spending more than it takes in. To cut the debt, Congress has to spend less or raise taxes. That would free up cash to pay down what the U.S. owes.

“The stock market’s gains have virtually nothing to do with the size of the national debt, which continues to rise because government spending far exceeds government receipts,” political economist Greg Valliere told CNNMoney.

“A higher stock market encourages consumers and companies to spend more, which helps the overall economy,” said Valliere of Horizon Investments. “But it’s absurd to contend that the national debt has fallen because of this.”

In fact, the president wants to cut taxes and potentially add to the debt if spending cuts cannot be found to offset those tax cuts.

The White House, in a statement, said Trump “was simply making the point that we’ve seen enormous growth in the stock market since his election, that means more money in the pocket of everyday citizens, and more circulating in our economy as a whole.”

As for that stock market rally, the Standard and Poor’s 500 is up nearly 20% since his election — an impressive rally. No question investors cheer this president’s pro-business, anti-regulation, lower taxes agenda. But under the Obama Administration that same index rose 235%. And no, that stock market rally did not reduce or offset the national debt either.

[CNN]

Media

Watch on CNN

Trump Tweets Wildly Misleading Comparison of the National Debt in His First Month to Obama’s

On Saturday morning, President Donald Trump took to Twitter to point out a fact he thought the media was underreporting: the decrease in the national debt in his first month.

“The media has not reported that the National Debt in my first month went down by $12 billion vs a $200 billion increase in Obama first mo[nth],” tweeted Trump.

The tweet, which echoes something Herman Cain said on Fox News’ Fox & Friends an hour before, doesn’t make sense for a few reasons.

First, it is true that the debt has probably ticked down but as noted by the Atlantic’s David Frum, this is mostly due to the federal government rebalancing its intra-governmental holdings. Debt outstanding to the public has barely budged since Inauguration Day.

Additionally, the federal government is still operating under the budget passed before Trump came into office, so even if the overall debt decreased, his administration had little to do with it.

Finally, and most importantly, the economic circumstances during his and Obama’s first month in office are vastly different and make the comparison totally off base.

When Obama took office in January 2009, the country was in the midst of the worst financial crisis since the Great Depression. The US economy lost 702,000 jobs in February 2009 and 832,000 in March 2009, GDP growth collapsed, and foreclosures soared.

In response to this crisis, Obama did what presidents typically do during recessions: took on debt to stimulate the economy.

President Obama’s first 100 days in the White House:

In the depths of a recession, private investment collapses. So, generally accepted economic theory concludes that the government should induce investment and step in during these times of crisis to prop up the stumbling private sector.

Thus, both Obama and his predecessor George W. Bush signed into law bills to inject large amounts of capital into the economy to both save the financial sector and get people back to work.

For instance, Bush passed the Toxic Asset Relief Program in October 2008 which used just over $426 billion in federal funds to “bail out” the country’s largest banks. Obama signed the American Recovery and Reinvestment Act in February 2009 which allocated $831 billion in federal funds to finance investment projects such as infrastructure.

By contrast, Trump has inherited — as he even noted — a country with a vastly improved economic standing.

The labor market has improved drastically, with unemployment at just 4.8% and the number of people claiming unemployment benefits nearing the lowest point in 40 years. In fact, during Obama’s term the US added over 11 million private sector jobs.

Donald Trump’s first 100 days in office:

Things outside of the labor market are pretty solid as well. Corporate profits have recently dipped below all-time highs and the stock market has soared more than 225% from its bottom in March 2009, and the housing market is growing again.

While it’s not all perfect — business investment is lagging, wages still haven’t hit pre-crisis levels, and economic gains have not been equally distributed throughout the country — there is no doubt that Trump inherits a better economic starting position than Obama did in 2009 with no reason to spend massive amounts of federal money to assist the economy.

Trump even noted these differences in a follow-up tweet.

“Great optimism for future of US business, AND JOBS, with the DOW having an 11th straight record close,” tweeted Trump. “Big tax & regulation cuts coming!”

While some of the increase in the confidence indexes have come after the election, much of the economic good news was around before Trump took office.

(h/t AOL)

Donald Trump Just Threatened to Cause an Unprecedented Global Financial Crisis

In an interview on CNBC, Donald Trump broke with tired clichés about the evils of federal debt accumulation. “I am the king of debt,” he said. “I love debt. I love playing with it.”

But he replaced fearmongering about debt with an even more alarming notion — a bankruptcy of the United States federal government that would incinerate the world economy.

“I would borrow, knowing that if the economy crashed, you could make a deal,” Trump said. “And if the economy was good, it was good. So therefore, you can’t lose.”

With his statement, Trump not only revealed a dangerous ignorance about the operation of the national monetary system and the global economic order, but also offered a brilliant case study in the profound risks of attempting to apply the logic of a private business enterprise to the task of running the United States of America.

Trump’s business logic makes sense

Trump is a businessman, and in terms of thinking like a businessman his idea makes sense.

The interest rate that investors currently charge the United States in order to borrow money is very low. A smart business strategy under those circumstances would be to borrow a bunch of money and undertake a bunch of big investment projects that are somewhat risky but judged to possibly have a huge payoff.

You now have two possible scenarios.

In one scenario, the investments work out and you make a ton of money. In that case, you can easily pay back the loan and everyone wins.

In another scenario, the investments don’t work out and you don’t make much money. In that case, you objectively can’t pay back the loan. You either work out a deal with the people you owe money to in which they accept less than 100 percent of what you owe them (this is called a “haircut”) or else you go to bankruptcy court and a judge will force them to accept less than 100 percent.

This is how businesspeople think — especially those who work in capital-intensive industries like real estate. And for good reason. This is the right way to run a real estate company.

Applying this idea to the United States would destroy the economy

The United States of America, however, is not a real estate development company. If a real estate company defaults on its debts and its creditors lose money, that’s their problem. If a bank fails as a result, then it’s the FDIC’s responsibility to clean it up.
The government doesn’t work like that. Right now, people and companies all around the world treat US government bonds as the least risky financial asset in the universe. If the government defaults and banks fail as a result, the government needs to clean up the mess. And if risk-free federal bonds turn out to be risky, then every other financial assetbecomes riskier. The interest rate charged on state and local government debt, on corporate debt, and on home loans will spike. Savings will evaporate, and liquidity will vanish as everyone tries to hold on to their cash until they can figure out what’s going on.

Every assessment of risk in the financial system is based on the idea that the least risky thing is lending money to the federal government. If that turns out to be much riskier than previously thought, then everything else becomes much riskier too. Business investment will collapse, state and local finances will be crushed, and shockwaves will emanate to a whole range of foreign countries that borrow dollars.

Remember 2008, when the markets went from thinking housing debt was low-risk to thinking it was high-risk, and a global financial crisis was the result? This would be like that, but much worse — US government debt is the very foundation of low-risk investments.

What’s especially troubling about Trump’s proposal is that there is genuinely no conceivable circumstance under which this kind of default would be necessary. The debt of the federal government consists entirely of obligations to pay US dollars to various individuals and institutions. US dollars are, conveniently, something the US government can create instantly and in infinite quantities at any time.

Of course, it might be undesirable to finance debts by printing money rather than raising taxes or cutting spending. In particular, that kind of money printing could lead to inflation, and even though inflation is very low right now there’s no guarantee that it will always be low.

But a little bit of inflation is always going to be strictly preferable to destroying the whole American economy, especially because a debt default would cause a crash in the value of the dollar and spark inflation anyway.

Trump doesn’t know what he’s talking about

This is the second time this week that Trump has revealed a profound ignorance of an issue related to government debts.

The early instance in which he kept proposing that Puerto Rico declare bankruptcy even though doing so is illegal was on a question that’s very important to Puerto Ricans but not so important to everyone else. It is, however, important to pay attention to how presidential candidates approach issues across the board — and what we saw with Puerto Rico is that Trump approached the issue by simplistically applying business logic without bothering to check whether it applies to the actual situation.

Now in the CNBC interview he’s done the exact same thing on a matter of more consequence —not the debts of Puerto Rico but the debts of the United States of America. It’s understandable that a real estate developer might assume that what works in real estate would work in economic policy, but it’s not true. And Trump hasn’t bothered to check or ask anyone about it.

(h/t CNBC)

Reality

What Donald Trump is proposing to pay off the national debt (which is money that we are obligated to pay creditors and for services) is to borrow large sums of money at a lower rate. In other words robbing Peter to pay Paul.  Should the economy be healthy then we can pay back that borrowed money no problem. However should the economy crash, and the United States is unable to meet the legal obligation of debt repayment (‘defaulting‘) then Trump proposed to renegotiate that new debt at a lower rate.

While Trump did not say the word ‘default’ he explained the exact definition of the word default in his proposal.

This raised eyebrows by suggesting an unorthodox approach towards cutting the national debt… not paying it then renegotiate terms. Such a renegotiation risks creating financial turmoil because U.S. Treasuries are considered the safest assets on the planet and a major benchmark for valuing other securities. Calling into question their safety could cause borrowing rates to rise and create confusion in the markets.

Confusion in the markets is a very bad thing. Wall Street and businesses need to know what the rules are in order to subvert play them.

Media

http://video.cnbc.com/gallery/?video=3000515269