“Economic Food Poisoning”: The Bankrupt Delusions Of Donald Trump, The ‘King Of Debt’
According to Donald Trump, at $19 trillion the federal government has too much debt. Or so little debt that we could pay it off in eight years.
He says we could buy back federal debt at a discount by raising interest rates. But if interest rates rise by a couple of percentage points, he said last week that the United States of America would cease to exist.
As for taxes, we need to raise them on the rich. No, we need to lower them. Or raise them.
And American workers? Their wages are too high. No, too many earn nothing because foreign workers make so much less. Then again, maybe the minimum wage is too low.
If all his contradictory comments seem confusing, the fact is that they are. They are also difficult to square with Trump touting his economics degree from an Ivy League school, the University of Pennsylvania, where he claims he was a top student.
What reality-show hosts say is of no consequence. But every public word presidents speak gets scrutinized worldwide. Candidate Trump’s wildly inaccurate and ahistorical statements are of no official consequence, but were he president they would have serious and damaging effects on the United States.
Consider what Trump said on May 5 to CNN’s Wolf Blitzer about the cost of servicing federal debt: “If interest rates go up 1%, that’s devastating. What happens if that interest rate goes up 2, 3, 4 points? We don’t have a country.”
By Trump’s reckoning America should have ceased to be a country long ago. Back in 1982 the 10-year bond paid 14.6%. Uncle Sam’s average interest cost on all federal debt was 6.6% when George W. Bush took office. Last month it was just 2.3% even though the debt is 17 times the level of 34 years ago.
Trump talked about buying back debt at a discount and cited his own success in taking out loans, but not paying them back in full. “I’m the king of debt,” he said, in one of his frequent tangential comments focusing not on how a Trump administration would govern, but reminding us of his self-proclaimed greatness.
When journalists try to parse Trump’s words—no easy task because transcripts show jumbled thoughts galore—his response is to accuse them of misquoting him. So, whom to believe: Trump or that lying videotape?
On CNBC, Trump implied that when he took out some loans, he never intended to repay them in full.
“I’ve borrowed knowing that you can pay back with discounts,” he said on CNBC. “And I’ve done very well with debt. Now, of course, I was swashbuckling, and it did well for me, and it was good for me, and all that. And you know debt was sort of always interesting to me. Now, we are in a different situation with a country, but I would borrow knowing that if the economy crashed you could make a deal.”
That last sentence might send shivers down the spines of those who buy federal debt, as it could be read to say he would crash the economy as president just to make the market price of Treasury debt fall. I read his remarks as another example of his lack of articulation, but others could reasonably read into those remarks a plan to submarine the economy.
When challenged about his words, Trump revised his comments saying he was thinking only in terms of renegotiating the federal debt—88% of which matures in 10 years or less—to longer terms. What Trump didn’t mention is that Treasury bonds with maturities of up to 30 years pay on average 4.5% interest, more than double the average federal interest rate. The contradiction here is obvious: By Trump’s own words switching to longer-term Treasury bonds would result in interest expenses so high that America would cease to exist.
The Politics of Winging It
How and why “we wouldn’t have a country” were interest rates to rise is just one of the many observations that Trump has never been asked to explain.
When Trump’s comments drew widespread criticism as reckless, he turned the tables on those who reported what he said. He claimed that others put words in his mouth and distorted his intent.
So how do we make sense of the following: “If we can buy bonds back at a discount,” he said, “we should do that.” He also said that there would be no reason for holders of federal debt to ask the government to buy their bonds back at a discount. If that is so—and it is—then why say any of this?
The explanation is that Trump is winging it, making it up as he goes along just as he has through his career, which I have covered on and off for 27 years.
To those who understand economics, public finance and taxes, listening to Donald Trump talk about these issues is like listening to Sarah Palin talk about anything. The contradictions, the baseless assumptions, the meandering sentences that veer off into nowhere belong more in the fictional world of “Alice in Wonderland” where, as the Cheshire cat advised, “it really doesn’t matter which way you go” in search of the White Rabbit, but you could ask the Mad Hatter or the equally mad March Hare.
You might think that after decades of planning a run for the White House—after all, he did run in 2000 as a Reform Party candidate—Trump would have developed a clear set of views on economics. You might think he would have devoured policy papers, retained top experts and tested out ideas in speeches heard by few. You might think he would have polished and logical lines by now.
But that would require treating these issues as matters deserving of serious study. Absent such study, it is no surprise that much of what Trump says confounds those who have spent their lives studying economics, public finance, taxes and history.
Whatever Trump may have learned in college, his flip-flopping and wavering suggest that Trump saw no need to prepare to be president. It’s as if a chef decided he didn’t need to learn how to cook before pulling off a White House State Dinner.
Trump just tosses concepts into a pot. He starts with made-up numbers (our China trade deficit is $338 billion, not Trump’s $500 billion); adds some brazen conspiracy theories (Obama was not born an American citizen); mixes them with irreconcilable vagaries (taxes should go down, but so should budget deficits); tosses in some populist myths (thousands in North Jersey celebrated as the Twin Towers burned) and rotten ideas (the President telling Carrier, Ford and Nabisco where to build factories)—and finishes it all off with a bucket of rhetorical nonsense.
Trump is superb at one aspect of this. His economic stew would induce economic food poisoning, but he sells it with an appealing name: Make America Great Again.
By: David Cay Johnston, The Daily Beast, May 10, 2016
“Ideology Displacing Facts”: Simpson-Bowles “Spending Problem” Voodoo Economics Ignores The Lack Of “Crowding Out”
Alan Simpson and Erskine Bowles – co-founders of the corporate lobby Campaign to Fix the Debt – were on Meet the Press this morning. I couldn’t drag myself to watch it because I am sick and tired of hearing every oligarch’s favorite lackeys argue that the national debt is a reason to gut the welfare state. Which is exactly what they were doing this morning:
“Yes, the president has taken some steps forward on the entitlement programs, but has he done enough? Absolutely not,” Bowles said.
But they and their disciples couldn’t be more wrong. The U.S. government has no “spending problem” from a macroeconomist’s point of view. Of course, the country can’t indefinitely continue to borrow more than it earns, but the idea that we must somehow tackle debt by cutting spending — and do it right now — is voodoo economics of the highest order.
For spending to be an immediate problem, it would have to be problematic. And the primary reason that government spending is problematic is due to “the crowding out effect.”
I could find some haughty economist to quote on the issue, but for simplicity’s sake here’s Wikipedia:
“…crowding out is a phenomenon occurring when expansionary fiscal policy causes interest rates to rise, thereby reducing investment spending.”
Yet interest rates are rock bottom and aren’t expected to rise anytime soon, and demand for U.S. Treasury bonds remains high.
Thus, government spending appears to be having no averse effect on financial markets, which, according to Treasury yields, actually seem to think that lending the U.S. government money is a wise idea. The debt “crisis” is only caused by a “spending problem” when one considers government spending to be an issue from an ideological standpoint.
If Simpson and Bowles were serious about tackling the debt without completely undermining the economy, they’d advocate higher taxes on those that can afford to pay more. Corporations are awash with cash, and capital is taking a larger slice of the pie than ever. But aggregate demand is lagging, and to undermine social safety nets would further weaken it. Sound economic policy would, therefore, have the rich finance deficit reduction — if it must be done in this fragile economy.
By: Samuel Knight, Washington Monthly Political Animal, January 6, 2013
Eric Cantor’s Glaring Conflict Of Interest
When Eric Cantor shut down debt ceiling negotiations last week, it did more than just rekindle fears that the U.S. government might soon default on its debt obligations — it also brought him closer to reaping a small financial windfall from his investment in a mutual fund whose performance is directly affected by debt ceiling brinkmanship.
Last year the Wall Street Journal reported that Cantor, the No. 2 Republican in the House, had between $1,000 and $15,000 invested in ProShares Trust Ultrashort 20+ Year Treasury EFT. The fund aggressively “shorts” long-term U.S. Treasury bonds, meaning that it performs well when U.S. debt is undesirable. (A short is when the trader hopes to profit from the decline in the value of an asset.)
According to his latest financial disclosure statement, which covers the year 2010 and has been publicly available since this spring, Cantor still has up to $15,000 in the same fund. Contacted by Salon this week, Cantor’s office gave no indication that the Virginia Republican, who has played a leading role in the debt ceiling negotiations, has divested himself of these holdings since his last filing. Unless an agreement can be reached, the U.S. could begin defaulting on its debt payments on Aug. 2. If that happens and Cantor is still invested in the fund, the value of his holdings would skyrocket.
“If the debt ceiling isn’t raised, investors would start fleeing U.S. Treasuries,” said Matt Koppenheffer, who writes for the investment website the Motley Fool. “Yields would rise, prices would fall, and the Proshares ETF should do very well. It would spike.”
The fund hasn’t significantly spiked yet because many investors believe Congress will eventually raise the debt ceiling. However, since Cantor abruptly called off debt ceiling negotiations last Thursday, the fund is up 3.3 percent. Even if an agreement is ultimately reached before Aug. 2, the fund could continue to benefit between now and then from the uncertainty. (One tactic some speculators are using is to “trade the debt ceiling debate” — that is, to place short-term bets on prices as they fluctuate with the news out of Washington.)
Salon’s Andrew Leonard calls the debt ceiling negotiations “Washington’s titanic game of chicken,” and the longer the game goes on, the more skittish the bond markets will become.
“Cantor’s involvement in the fund and negotiations is not ideal,” Koppenheffer said. “I don’t think someone negotiating the debt ceiling should be invested in this kind of an ultra-short. We can only guess how much he understands what’s in his portfolio, but you’d think a politician would know better. It looks pretty bad.”
Cantor spokesman Brad Dayspring noted that U.S. Treasury bonds make up a large portion of the congressman’s pension, and said investment in ProShares ETF serves to balance that investment and to diversify his portfolio. Disclosure forms indicate that Cantor has considerable personal assets, including real estate in Virginia worth up to $1 million, and a number of six- and seven-figure loans to private entities and limited liability companies. So his investment in ProShares ETF represents only a small portion of his overall portfolio — but that share could grow a little larger just over a month from now.
By: Jonathan Easley, Editorial Fellow, Salo, June 27, 2011
Grave Consequences: Wall Street Tells John Boehner To Back Off The Debt Ceiling
Republicans are growing increasingly concerned about the impact a bruising fight over raising the nation’s $14.29 trillion debt ceiling could have on U.S. financial markets.
House Speaker John Boehner (R-Ohio) has had conversations with top Wall Street executives, asking how close Congress could push to the debt limit deadline without sending interests rates soaring and causing stock prices to go lower, people familiar with the matter said. Boehner spokesman Michael Steel said Tuesday night that he was not aware of any such conversations.
Treasury Secretary Timothy Geithner has warned Congress that without new borrowing authority, the federal government could hit the statutory debt limit by May 16.
Treasury could then implement emergency measures to continuing making interest payments on existing debt until around July 8. After that, the U.S. risks going into default, an unthinkable idea to many economists and market participants who say such an event could drive scores of large banks into failure, send interest rates skyrocketing as foreign investors abandon U.S. securities and crush the already slow-going economic recovery.
Republicans and even some fiscally conservative Democrats want to use the debt limit fight as leverage to wring more significant spending cuts out of the White House. Politicians of all stripes are worried about how independents will react to a vote — or multiple stop-gap votes — to raise the debt ceiling. Many executives on Wall Street believe Washington is playing an enormously dangerous game with what is typically a non-controversial vote.
Sen. Chuck Schumer (D-N.Y.), who leads the Senate Democrats’ messaging efforts, expressed anger that Boehner was searching for leeway on the debt limit.
“The speaker seems to be testing out how far he can venture onto a frozen lake before the ice breaks. He should listen to business leaders who are telling him to watch his step. Messing around with the debt ceiling just to satisfy the tea party will lead to higher interest rates and an economic cataclysm.”
The Wall Street executives say even pushing close to the deadline — or talking about it — could have grave consequences in the marketplace.
“They don’t seem to understand that you can’t put everything back in the box. Once that fear of default is in the markets, it doesn’t just go away. We’ll be paying the price for years in higher rates,” said one executive.
Another said that “anyone interested in ‘testing’ the debt ceiling should understand the U.S. debt traded wider [with a higher yield] than Greek debt roughly five years ago. Then go ask CBO what happens to our deficits/public debt to GDP, if the 10-year [Treasury bond] goes from 3.5 percent to 5.5 percent to 7.5 percent.” The executive said such an increase would result in a downgrade of U.S. debt by ratings agencies and an end to the dollar as the standard global reserve currency.
By: Ben White, Politico, April 13, 2011
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