Saturday, May 7, 2016

Trump's comments on debt have exposed a deep, DEEP, pool of ignorance about the monetary system, from every corner imaginable

Trump comments on the debt

Trump's comments on the debt, like this one, that he would look to "renegotiate" the debt or in some way, do a bankruptcy filing (like he's familiar with) and "pay back" less to "investors," or, "refinance" to  "lock in" lower long term rates, shows his utter ignorance about the debt.

But his comments didn't just expose his own ignorance, it exposed a deep and broad ocean of ignorance out there with respect to the debt from every corner imaginable.

First, let me just simplify: In all its forms--renegotiate, default, etc--what Trump is suggesting is basically a global tax increase. It's removing dollar based savings from the global economy. He thinks that's good? He is totally clueless.

But don't expect Trump or anyone else to understand that. And the proof is, people are saying some really crazy shit right now.

For example, I was watching this idiotic show, Wall Street Week, last night and the guest was "Bond King," Jeffrey Gundlach.

Gundlach has been going around saying that a Trump presidency would see debt levels skyrocket, because Trump loves debt. Fair enough. Trump has had a lot of experience dealing with private sector debt. (Bank credit.)

However, Gundlach never mentions that the government's debt is different. It's a super-safe asset sought after by the private sector. And it's a debt in its own currency--the dollar--which the United States has the monopoly power to issue. Furthermore, the only real debt or, promise, is that the government will accept its own currency for payment of taxes. Easy to fulfill.

Gundlach could have said that Trump would end up adding trillions in super-safe assets to the global economy. Assets that people have been clamoring for, for decades. But he didn't say that because he doesn't understand.

Next he says that the country "wouldn't be able to handle" all that additional debt. Both of the clown hosts agree with him. What the hell does that mean? The country and the world, even, couldn't handle trillions more in super-safe assets? Nothing. No understanding. Nothing. Frightening, really. He's the bond KING, remember.

Then he says "rates would skyrocket." May I remind you--again--this is coming from the mouth of the Bond King. Again, no understanding at all that rates would still be set by the Fed. Shocking.

A similar article had this headline:

Likely impact of Trump proposal for US debt: soaring rates

How? Tell me how? This is a total and complete lack of understanding of how rates are set. We have already seen a U.S. credit downgrade, the doubling of the "debt" in the past eight years and rates are at all-time lows. These people see no connection. They're not even wondering.

Look at this statement:

"The need to refinance would likely cause interest rates to spike as investors demanded a greater return for the perceived risks of non-payment. More tax dollars would have to go toward repaying the debt. Many investors would shift their money elsewhere. And the economy could endure a traumatic blow."

Investors demand a greater return? Too bad. Again the idea that the sovereign, monopoly currency issuer, is somehow beholden to investors, creditors.

And then there's this:

"More tax dollars would go toward repaying the debt." 

Wow. Where do those tax DOLLARS come from? The government has to add those dollars to the economy before anyone can even "repay the debt," which means there is no repaying of the debt at all. The only thing that happens is a bookkeeping entry over at the Fed, where the accounts of Treasury holders are debited and their reserve accounts (cash) are credited. Like moving your money from your savings account to your checking account.

Wow. Wow. Wow. Wow. Wow...WOW.

What about this"

"The yield on a 10-year Treasury note is about 1.8 percent, a figure that would shoot up if Trump pursued this strategy. This would cause debt payments to climb at a precarious moment for the federal budget when Social Security, Medicare and Medicaid costs will likely increase the need to borrow."

Again, this is so wrong. This is so dumb. It's shocking and frightening. It exposes a deep, deep, very disturbing level of misunderstanding with respect to the debt, sovereign money, rate setting

It's wrong on every level imaginable. On the belief that we borrow from creditors. On the belief that we need to "lock in low rates" as if rates are decided by someone else. On the lack of understanding that "renegotiating the debt" or, paying back less, DESTROYS the savings of everybody and how is that good?

This is unimaginably fucked up. Trump is an idiot on this, but he exposes a truly shocking and disturbing level of ignorance, all around.

We are fucked.


Simsalablunder said...

So what's left to believe in regarding Trump? He's not good looking. He can't sing. Can he dance?

Peaceful Poster said...

I'm a big Trump fan except for his fiscal stance. But Trump certainly doesn't stand alone in that regard, especially on the Republican side.

Bernie has the best fiscal stance, probably thanks to Stephanie Kelton.

I was hoping for a Trump/Bernie 2016 independent ticket. They would have won in a landslide!

Maybe it isn't too late.

Michael Norman said...


And true.

Matt Franko said...

Its so bad its "not even wrong..."

I think we would be best to just keep on analyzing the USD system via our more deterministic understanding/theory that we can develop over time... while still keeping an eye on what the morons are doing within our said deterministic understanding and thus hopefully be able to best navigate the chaos that keeps on resulting from the policies imposed by these idiots...

Seems like all we can do nobody listens to us...

Michael Norman said...

Correct. Nobody is listening to us and nobody is voting for us and none of us have any (real) money and if we did we probably wouldn't change a thing.

Simsalablunder said...

Life sucks… but look -the sun's shining:)

Ben Johannson said...

We could leverage the Forex into a global syndicate. A group of like-minded people can make a lot of money and influence pooling information.

Bob said...

MMT cannot be ignored forever.

Simsalablunder said...

Most people wont live that long…

Jose Guilherme said...

I don't agree that "nobody is listening". Thanks to MMT lots of influential people (Paul Krugman and many others) now acknowledge basic monetary facts, e. g., that a monetary sovereign can never go broke, that interest rates are not set by "free markets" etc. etc.

Of course they neither state it too openly nor give due credit to MMT for fear of negatively impacting their "serious people" careers.

But the knowledge genie has now definitely come out of the bottle and it simply can't be put back inside again.

Tom Hickey said...

Agree, Jose. We are in the last mile.

Stephanie Kelton's proximity to Bernie Sanders is testimony to that, if nothing else. Even conventional economic ideologues have had to take cognizance of that.

Matt Franko said...

A mile is a measure of distance not time....

Tom Hickey said...

It is distance metaphorically. It means the we've come a long way and are now in the final leg.

First they ignore you, then they laugh at you, then they fight you, then you win.Mahatma Gandhi

Matt Franko said...

"Paul Krugman and many others) now acknowledge basic monetary facts, e. g., that a monetary sovereign can never go broke, "

Not if we are in a "liquidity trap!"

Jose Guilherme said...

Krugman's MMT-consistent position on the irrelevance of bond vigilantes is very well stated here:

Ryan Harris said...

As long as economic orthodoxy are allowed to teach in schools and remain in government, people will think about debt like Trump does. This is the BS they've been teaching for decades and continue to teach today. Idiotic, yes, but can't blame public, the victims, for the economic criminals.

Dea Hagalaz said...

Trump may be cruel, arrogant,and narcissistic but he is not that stupid..