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.
