Trump debt plans make US's creditors uncomfortable
by Daily Sabah with Wires
ISTANBULMay 10, 2016 - 12:00 am GMT+3
by Daily Sabah with Wires
May 10, 2016 12:00 am
Donald Trump's suggestion that America pay international creditors less than full value on U.S. Treasury bills has raised concerns that confidence in the world's most trusted financial asset could be shaken. Such a move could introduce chaos, according to experts.
The presumptive Republican presidential nominee suggested in a phone interview on Thursday with CNBC that he would stimulate growth through borrowing. If trouble arose, he added, he could get investors to accept reduced payments for their Treasury holdings. Trump later clarified that comment to say he would offer to buy the bonds back at a discount from investors, in hopes of refinancing them at lower rates. "I would borrow, knowing that if the economy crashed, you could make a deal," Trump told CNBC. "I am the king of debt. I do love debt. I love debt. I love playing with it," Trump said.
This despite the 14th amendment to the U.S. Constitution explicitly stating, section four, "the validity of the public debt of the United States, authorized by law... shall not be questioned." "Defaulting on our debt would cause creditors to rightly question the ‘full faith' commitment we make," Tony Fratto, former assistant secretary for public affairs at the Treasury Department, told ABC News. "It's an insane idea."
"That would be an outrageous thing to do," Michael Strain, an economist at the American Enterprise Institute, told the Washington Post. "It could introduce chaos."
For some, it was just an outspoken truth about U.S. debt. In a recent interview with CNBC, stockbroker Peter David Schiff said that the nominee was fundamentally correct in his observation. "Trump just admitted on CNBC that America has too much debt to afford a rate hike, and that he wants our creditors to accept less than 100 cents on their Treasurys," the Euro Pacific Capital CEO told CNBC last week. "In other words, Trump knows a U.S. government default is inevitable."
Schiff compared the issue of renegotiating the more than $19 trillion in U.S. debt to the crisis of Puerto Rico, saying, "if rates go up, refinancing debt will not help. If rates go up, refinancing [debt] doesn't help. The only thing that helps is restructuring." "The commonwealth can't pay because they are broke, well the math applies on the mainland just like it applies in Puerto Rico, we can't pay either," Schiff said. "And if interest rates go up, Donald Trump is right, we have no choice than to tell our creditors they are taking a big haircut."
Keep up to date with what’s happening in Turkey,
it’s region and the world.
You can unsubscribe at any time. By signing up you are agreeing to our Terms of Use and Privacy Policy.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.