I was wrong about Trump

I wrote the previous post under the mistaken assumption that Trump is not a complete lunatic.  Mea culpa.  I assumed that when he talked about refinancing US debt at lower rates, he meant that as short term debt matured he’d replace it by issuing longer term debt.  I never even dreamed that he was talking about defaulting on the debt, and then refinancing at lower rates. (I’m sure lots of people will be anxious to lend us money at lower rates right after we default.)

WASHINGTON (AP) — In the event that the U.S. economy crashed, Donald Trump has floated a recovery plan based on his own experience with corporate bankruptcy: Pay America’s creditors less than full value on the U.S. Treasurys they hold.

Experts see it as a reckless idea that would send interest rates soaring, derail economic growth and undermine confidence in the world’s most trusted financial asset.

The presumptive Republican presidential nominee suggested in a phone interview 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.

Such a move, never before attempted by the U.S. government, would likely spook investors whose trust in Treasury notes keeps global financial markets operating.

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.

“It seems Trump is planning to try to run the country like one of his failed business ventures, and that does not bode well,” said Megan Greene, chief economist at Manulife.

The move would also end a policy introduced during the presidency of George Washington — and celebrated in the Pulitzer Prize-winning Broadway musical “Hamilton”— to pay full face value on the debts incurred by the country. The government’s unfailing payments of its debt have long pleased investors and supported the economy because the country can borrow at lower rates than it otherwise could.

“Defaulting on our debt would cause creditors to rightly question the ‘full faith’ commitment we make,” said Tony Fratto, a former Treasury Department official in George W. Bush’s administration. “This isn’t a serious idea — it’s an insane idea.”

.  .  .

“It would make a bad situation worse and increase U.S. borrowing costs on its debt going forward because we would have lost our credit rating,” said Chad Stone, chief economist at the Center on Budget and Policy Priorities.

.  .  .

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.

“There is no upside,” said Douglas Holtz-Eakin, an economist and president of the conservative American Action Forum. “It’s a false hope.”

This is my favorite part:

“I would borrow, knowing that if the economy crashed, you could make a deal,” Trump told CNBC.

Trump’s an expert in running businesses through bankruptcy, and I’m sure he’ll do fine when the US government goes into Chapter 11.  Is Washington DC like Texas, where you get to keep the (White) House after bankruptcy?

PS.  I was also wrong when I mocked his claim that he’d get rid of the entire national debt in 8 years.  I never contemplated the default scenario.


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79 Responses to “I was wrong about Trump”

  1. Gravatar of E. Harding E. Harding
    6. May 2016 at 12:56

    “I wrote the previous post under the mistaken assumption that Trump is not a complete lunatic.”

    -He’s clearly not a complete lunatic; he won the nomination.

    “PS. I was also wrong when I mocked his claim that he’d get rid of the entire national debt in 8 years. I never contemplated the default scenario.”

    -See, that’s what you get for not thinking outside the box.

  2. Gravatar of foosion foosion
    6. May 2016 at 13:12

    Will you vote for Clinton?

  3. Gravatar of John Hall John Hall
    6. May 2016 at 13:21

    Scott, I thought you believed in the efficient market hypothesis. If there were a non-zero probability of Trump defaulting in debt, don’t you think that yields would have increased as investors sold out of U.S. debt?

  4. Gravatar of Massimo Heitor Massimo Heitor
    6. May 2016 at 13:24

    Who else should a xenophobic christian racist vote for if “anti-foreign” bias is the most important issue, as Caplan suggests.

    Trumps fans/foes generally don’t care about these technocrat finance details. Trump will probably drop this idea when it polls poorly and flip flop to something else.

  5. Gravatar of Bill Bill
    6. May 2016 at 13:55

    “Make a deal”?
    Who would he negotiate with? James Carville, reincarnated as “the bond market”?

  6. Gravatar of Steve Steve
    6. May 2016 at 14:15

    “I was wrong about Trump”

    Told you! Moron Clown, not bigot. Sad!

  7. Gravatar of Floccina Floccina
    6. May 2016 at 14:30

    This is getting more fun all the time.
    Well that is one way to get congress balance the budget.
    It might get people to sell treasuries and spend.
    Why should the USA use debt now that the population is growing slowly?

  8. Gravatar of Ironman Ironman
    6. May 2016 at 14:46

    Perhaps Trump plans to follow Dean Baker’s preferred method of national debt reduction?

    More seriously, there is an easy way to reduce the national debt by $1 trillion – sell the entire stock of federal direct student loans back to the private sector. Sure, the government will take a big loss on it, seeing as they’ll have to sell these assets at a significant discount on account of all the delinquencies and defaults, but since it is already losing money on them anyway, it might as well have something positive to show for having dabbled in a business where it doesn’t belong….

  9. Gravatar of ssumner ssumner
    6. May 2016 at 14:52

    Harding, You are wasting your time. I already know that you’d defend Trump even if he advocated torturing babies. Tell me something I don’t know.

    Foosion, Endorsements will come soon.

    John, You said:

    “If there were a non-zero probability of Trump defaulting in debt”

    That’s a big if.

  10. Gravatar of foosion foosion
    6. May 2016 at 15:08

    Scott, looking forward to seeing your endorsements.

    Speaking of torturing babies, we have this interchange with the official who approved Bush’s program: ‘If the President deems that he’s got to torture somebody, including by crushing the testicles of the person’s child, there is no law that can stop him?’, to which Yoo replied ‘No treaty.’ Cassel followed up with ‘Also no law by Congress—that is what you wrote in the August 2002 memo’, to which Yoo replied ‘I think it depends on why the President thinks he needs to do that.’
    https://en.wikipedia.org/wiki/John_Yoo#Regarding_torture_of_detainees

  11. Gravatar of A Definite Beta Guy A Definite Beta Guy
    6. May 2016 at 15:26

    *roll eyes*
    Reniter class whining because the gravy train is coming to an end.
    Look at this stupid line:

    and celebrated in the Pulitzer Prize-winning Broadway musical “Hamilton”

    Can y’all kindly quit trumpeting this loser Bobo lifestyle?

    Trump is obviously not going to default on the debt. He’s not even legally allowed to do it.

    Trump is pivoting towards the center. He’s running on the New Deal, supporting Janet Yellen, and saying Bernie Sanders was screwed. His rationale is quoting a Moody’s study saying that the return on federal spending is $1.44 per dollar.

    His response on debt is no more moronic than the “we’ll just inflate our way out of it, sovereign debt issuer!”
    His response is even MORE intelligent than the standard liberal response “well, look at Japan, we can take on LOTS more debt and face no danger.”

    This is about defeating Democrats, not supporting Trump. They are bending HARD towards hard-core socialism and race-baiting. And Bernie Sanders absolutely does believe all the crap he spouts, along with the Democratic base.

    I don’t like Trump either, but it’s pretty clear the intellectual Bobos are incapable of handling this discussion rationally or strategically.

  12. Gravatar of E. Harding E. Harding
    6. May 2016 at 15:38

    “Harding, You are wasting your time. I already know that you’d defend Trump even if he advocated torturing babies.”

    -Well, that’s the defining characteristic of a two-party system. And notice I’m not defending Trump all that much on this issue.

  13. Gravatar of Lawrence D’Anna Lawrence D'Anna
    6. May 2016 at 15:40

    “I would borrow, knowing that if the economy crashed, you could make a deal,”

    Isn’t that exactly what happens under NGDPLT, if you interpret what he said in real terms, not in nominal terms?

    I mean, except for the ‘making a deal’ part, because it’s automatic and lawful, not ad-hoc and negotiated.

  14. Gravatar of Edwin Alvarenga Edwin Alvarenga
    6. May 2016 at 15:40

    Ah, aka the Robert Murphy/Ron Paul plan.

    http://consultingbyrpm.com/blog/2011/07/does-karl-denninger-understand-how-central-banks-inflate-nowadays.html

  15. Gravatar of Christian List Christian List
    6. May 2016 at 15:41

    That’s what I actually like about Trump. His so-called “lunatic” ideas. No other politician is having lunatic ideas anymore. That’s really sad. Politics became a very narrow trail of political correctness. Libertarians should be disgusted by that.

    Hillary would never have such an idea. And she couldn’t even tell you why. Or even better she could tell you why: Because no one else is saying it. That’s her whole agenda. Do what other people think is right. She’s a perfectly assimilated clown with no big and new ideas on her own ever. I find that extremely boring.

    The last US politician with so-called lunatic ideas was Ronald Reagan when he told Mr. Gorbachev to tear down this wall for example. I remember quite well what all the so-called “experts” said to this idea: Stupid, lunatic, hopelessly naive. And what did actually happen? Only two years after his lunatic speech the wall went down.

    I bet there’s a way the US could default on their debt without too much catastrophic distortion. In one sense it would “only” by a massive redistribution of income and wealth from the rich to the poor.

    I also bet after the default the rates would be pretty nice pretty soon again. Way sooner then all the so-called experts expect. First because the US got no debt anymore and second because all the people who want to buy bonds have simply no other place to go. The US is the biggest bond market by far. I assume you could do quite a lot of astonishing things – as long as you remain the dominating economic power in the world.

    So if you take a look at 1945-2016 you can assume that the time for such stunts is running up and that the chances to pull this off get weaker with every year because the US is losing dominance since 1945. So if you really want to do such a stunt ever you might better do it now. And not in 50 or 100 years.

  16. Gravatar of E. Harding E. Harding
    6. May 2016 at 15:47

    Also, Trump won the nomination because he has no feeling of guilt. And, as Nietzsche pointed out, guilt derives from the feeling of one’s need to pay back debt. Hm…

  17. Gravatar of Benjamin Cole Benjamin Cole
    6. May 2016 at 15:48

    I thought someone had told Trump about QE. Paying down a few trillion more in QE might actually work.

    Well, eventually somone will inform Trump QE is better than debt default.

    On the other hand, there are such “yuuge” pools of capital out there that the US could probably default once and get away with it. Argentina re-entered capital markets.

    But I much prefer federal budget surpluses and enough QE to bring inflation to 3%-4% or so….in eight years Trump could reduce federal debt to GDP by 50%….assuming the Fed kept increasing its balance sheet, which it can…under a Trump appointee. I hope someone in Trumpland is reading this….

  18. Gravatar of E. Harding E. Harding
    6. May 2016 at 15:51

    Also, America’s going off the gold standard was a type of default.

  19. Gravatar of Benjamin Cole Benjamin Cole
    6. May 2016 at 15:51

    Second take: perhaps Trump is planning to indicate (when President) he will default on debt and then use the Fed and QE to buy a lot of debt back at a discount. Perhaps Trump could pull that off. He seems to know about this kind of chicanery.

    Imagine someone using chicanery on behalf of taxpayers, instead of against.

  20. Gravatar of Scott Freelander Scott Freelander
    6. May 2016 at 16:07

    Scott,

    The sad thing is, he’s not the only national Republican politician in recent years to suggest purposely, and entirely unnecessarily, defaulting on US debt. Some of the teabaggers in Congress were pushing this idea a few years ago.

    Remember though guys, these are the real patriots. These are the smart people. This is “winning.”

    Even Bernie Sanders, as economically illiterate as he is, knows he can’t just default on Treasuries and expect the debt situation to improve. LOL. This kind of lunacy and pandering to idiots could perhaps only be matched by Tsipras in Greece, though perhaps even he knows better.

    Trump would turn us into Greece, despite not having the straight jacket of the common currency. lol

    Optional, unnecessary default… A truly Republican idea.

  21. Gravatar of ssumner ssumner
    6. May 2016 at 16:38

    Everyone, Thanks for confirming my assumptions about Trump supporters.

  22. Gravatar of Major.Freedom Major.Freedom
    6. May 2016 at 17:27

    Everyone, this is a left wing anti-GOP blog. Do not under any circumstance promote the GOP or else Sumner’s suspicions, which are really confirmation biases, will be announced.

    Shrinking government, which a massive increase in government interest rates will encourage? Bah! Small government is soooo yesterday libertarianism. Future libertarianism requires associating Trump with Hitler and ensuring the government can keep borrowing at near zero rates.

  23. Gravatar of Thiago Ribeiro Thiago Ribeiro
    6. May 2016 at 19:34

    “Hillary would never have such an idea. And she couldn’t even tell you why. Or even better she could tell you why: Because no one else is saying it. That’s her whole agenda. Do what other people think is right. She’s a perfectly assimilated clown with no big and new ideas on her own ever. I find that extremely boring.”– Christian List

    http://www.schlockmercenary.com/assets/resized/img/3779149-no%2Byou%2Bmove%2Bcap%2Bsays-0-800-0-565.jpg

  24. Gravatar of Jon Jon
    6. May 2016 at 20:27

    Scott, what trump says makes no sense. Who is to say what it means?

    It is clear though that if yields jump, you could buy back the old notes at a deep discount. Are you coming out ahead or behind?

    http://www.ft.com/cms/s/0/9a29d4c2-e122-11e5-9217-6ae3733a2cd1.html#axzz47wICHKDI

    Check out also “The strategy of debt buybacks: A theoretical analysis of the competitive case” Carlos A Rodríguez 1989 imf publication

  25. Gravatar of Derivs Derivs
    6. May 2016 at 21:06

    “I bet there’s a way the US could default on their debt without too much catastrophic distortion.”

    I would happily take the other side of that bet.

  26. Gravatar of Gary Anderson Gary Anderson
    6. May 2016 at 22:22

    Beta, you indeed are a fish out of wather when you say things like this:

    “This is about defeating Democrats, not supporting Trump.”

    Trump is the issue. He has always been the issue. I think he wants a war of civilizations like a few crazies at Harvard have advocated. The guy needs to be banished to his golf resorts, where black and Hispanic sports athletes should never approach, ever again. I am a fan of golf and golf should boycott Trump FOREVER.

    Clinton is only the lesser of two evils.

  27. Gravatar of H_WASSHOI H_WASSHOI
    6. May 2016 at 22:55

    I still wonder what is Bananafish

  28. Gravatar of rob rob
    6. May 2016 at 23:21

    Make America Greece Again! Though if this were likely wouldn’t we see the interest rates on treasury bonds responding?

  29. Gravatar of W. Peden W. Peden
    7. May 2016 at 03:49

    “The last US politician with so-called lunatic ideas was Ronald Reagan…”

    No, there are loads of US politicians with ideas that are called “lunatic”. See Lyndon LaRouche, David Duke, Bernie Sanders…

    “They called Ronald Reagan “crazy”…” is no better an argument for voting Trump than “They called Columbus “crazy”…” as an argument for jumping out of a 10-story building.

  30. Gravatar of ssumner ssumner
    7. May 2016 at 05:10

    Jon, You said:

    “Scott, what trump says makes no sense. Who is to say what it means?”

    You don’t understand. If we mortals think it makes no sense then that just means we have yet to reach the heights of Trumps subtle cognition. He’s operating on a level far above us, it’s up to us to figure out the deep meaning in his utterances.

    Rob, That would have been a good title for the post.

    W. Peden, The logic employed by these guys is breathtaking. Another one I like is that since conventional politician A once said something loony, Trump’s entitled to say 100 loony things, 100 days in a row.

  31. Gravatar of XVO XVO
    7. May 2016 at 05:40

    It’s a brilliant move. This is the initial position for a compromise on taking care of the debt. Force everyone to lay their cards on the table. What would politicians be willing to give up to avoid this? A little cut to ss and med? Slightly higher taxes or inflation? Badaboom.

  32. Gravatar of mbka mbka
    7. May 2016 at 07:36

    Well I just hours ago I wrote in jest that Trump would make America great again by bankrupting it four times (like his businesses). And then it turns out that’s the plan indeed. Obviously I also lack that creative spirit.

    Well at least this way Harding gets his wish and China shoots to world power #1 through USA suicide. For the first time since its inception the US would stand to lose the advantage of being the world’s reserve currency. It would become like any other country. It would lose both some of the sovereignage it benefited from, and the exceptionally low interest rates it used to pay. A thing of beauty. Maybe Trump’s not a Dem mole after all – maybe he is the TRUE Manchurian candidate.

    Trumpophile commenters show that extraordinary delusions and madness of crowds have already taken place. Do not adjust your televisions. Anything that Trump says has some secret, unseen merit. Sort of like that other emperor’s clothes I suppose.

  33. Gravatar of Gary Anderson Gary Anderson
    7. May 2016 at 08:03

    Glad to see that Trump has been exposed. Hey Scott, minimum wage was raised 3 dollars in Portland, Oregon and according to the article it has done diddly squat to the job market. So much for not raising the minimum wage. I guess it is where you do it that counts!!!

    https://www.yahoo.com/news/portland-gave-minimum-wage-workers-raise-heres-happened-120004830.html

  34. Gravatar of Ray Lopez Ray Lopez
    7. May 2016 at 09:10

    But higher rates are stimulative professor, according to the Fisher Effect (sarcasm; in fact, money is neutral)! So bankruptcy is good. Get with the Newspeak program.

  35. Gravatar of Negation of Ideology Negation of Ideology
    7. May 2016 at 09:30

    Now Trump wants to default on the Debt? But Alexander Hamilton would roll over in his grave!

    Just when I think Trump can’t get any crazier, he comes up with this nonsense. What is “conservative” about the government violating contracts with creditors? Hilary Clinton is more conservative than Donald Trump, which is why I’ll be voting for the Democrat for President for the first time in my life.

  36. Gravatar of E. Harding E. Harding
    7. May 2016 at 09:58

    Guys, does the President have any control over whether the Federal government defaults, anyway?

    @Negation

    -Are you really for open borders and militant Islam? And the government violated contracts with creditors in 1933. Didn’t lead to much of a disaster.

  37. Gravatar of Negation of Ideology Negation of Ideology
    7. May 2016 at 10:25

    E. Harding –

    “Are you really for open borders and militant Islam?”

    No, and neither is Hilary Clinton. My position is treat immigration law like other nonviolent laws, and enforce them as best we can at the source, but with a statute of limitations. So if someone overstayed their Visa or crossed the border 20 years ago and we haven’t deported them by now then we should leave them alone. I don’t know where the line should be, but that’s part of governing – making those distinctions.

    Until a few years ago, if you ordered something online and the business had no physical presence in your state, the tax wasn’t collected at the source, but you were legally required to pay the tax. Very few people did. Do you favor prosecuting everyone who bought something online in the last 20 years and didn’t pay the use tax? The tax law is no less important than the immigration law, and probably more important. A few years ago we wisely decided to enforce the sales tax law at the source, and forget about the millions of people who ignored the law before that.

  38. Gravatar of Trump on Debt Default Trump on Debt Default
    7. May 2016 at 11:56

    […] So people are freaking out about Trumps remarks concerning Treasury debt default. (E.g. Yglesias and Sumner.) […]

  39. Gravatar of Andrew M Garland Andrew M Garland
    7. May 2016 at 13:38

    Unsophisticated (Trump): If the US can’t repay its debts through tax revenue, we will negotiate to pay off what we can. The bondholders will take a fractional loss.

    Sophisticated: If the US can’t repay its debts through tax revenue, we will print up money as needed. This meets our technical requirement to avoid default. The bondholders and the public will take a fractional loss through inflation, but the public won’t realize this.

    Trump is showing his business background. He thinks that unpaid debts need to be negotiated as in business. He has yet to realize the many levers and deceptions which are available to a politician.

    This may be too charitable to Trump. Maybe he is a moron. But, is the sophisticated position really the good one? Should the public bail out the bondholders and the politicians?

  40. Gravatar of Art Deco Art Deco
    7. May 2016 at 14:05

    No, and neither is Hilary Clinton.

    I have news for you. All federal Democratic pols not named ‘James Webb’ or ‘Joe Manchin’ favor open borders and will continue to do so until marginal increments to the immigrant population are at cross-purposes with cultivating the Democratic Party vote farm.

    My position is treat immigration law like other nonviolent laws, and enforce them as best we can at the source, but with a statute of limitations. So if someone overstayed their Visa or crossed the border 20 years ago and we haven’t deported them by now then we should leave them alone. I don’t know where the line should be, but that’s part of governing – making those distinctions.

    There are no ‘nonviolent laws’. There are property and drug crimes.

    There are little in the way of salient epistemological problems which arise from the passage of time in deportation proceedings. The person was issued a visa or he was not. The person has proof of nativity or he does not. There’s no point to a statute of limitations unless you just do not give a rip or you’re backlogged with priority cases. It’s not going to be any more time-consuming to process someone who sneaked across the border in 1994 than to process someone who sneaked across last year.

    Until a few years ago, if you ordered something online and the business had no physical presence in your state, the tax wasn’t collected at the source, but you were legally required to pay the tax. Very few people did. Do you favor prosecuting everyone who bought something online in the last 20 years and didn’t pay the use tax? The tax law is no less important than the immigration law, and probably more important. A few years ago we wisely decided to enforce the sales tax law at the source, and forget about the millions of people who ignored the law before that.

    About 16% of income tax liabilities are not fulfilled. Presumably sales taxes suffer leakages as well. Not much you can do about that. You can prevent foreigners from colonizing the American southwest. It does require that you enforce the immigration laws. That requires public works and manpower. You don’t build that by striking attitudes, including the one where you tell me you’re just too cool for school.

  41. Gravatar of E. Harding E. Harding
    7. May 2016 at 15:34

    “No, and neither is Hilary Clinton.”

    -LOL:

    She has been more specific about an overhaul of the immigration system at the outset of a Clinton presidency, promising to advance comprehensive reform that offers a path to full citizenship for illegal immigrants within her first 100 days.

    “If Congress won’t act, I’ll defend President Obama’s executive actions and I’ll go even further to keep families together,” Clinton promised in January. “I’ll end family detention, close private immigrant detention centers and help more eligible people become naturalized.”

    Clinton also has been mildly critical of Obama’s deportation program, promising to stop deportations of almost everyone, aside from violent criminals or terrorists.

    “The tax law is no less important than the immigration law, and probably more important.”

    -Tax revenue shortfalls last for months. People last for decades. Genes last for centuries.

  42. Gravatar of Alex Alex
    7. May 2016 at 15:42

    Last week he said that if he didn´t win the election then the US would become like Argentina. Now he says he wants to default on US debt? That would surely be a step towards the United States of Argentina.

  43. Gravatar of Mike Sax Mike Sax
    7. May 2016 at 15:58

    Regarding how you might vote, I was at first thinking you’d probably go Gary Johnson or some other libertarian write-in.

    But on second thought, I think you’d probably go Hillary even though you dislike her, as your first concern is to make sure Trump doesn’t win-and the best way to do that is to vote for Hillary.

    Will be waiting for your endorsement with bated breath.

  44. Gravatar of Mike Sax Mike Sax
    7. May 2016 at 15:58

    Major, do you consider Trump a libertarian?

  45. Gravatar of Massimo Heitor Massimo Heitor
    7. May 2016 at 22:09

    Notice that Sumner goes from saying, “Don’t vote for Trump because he’s not the xenophobic nationalist that you think he is” to “Don’t vote for Trump because he _is_ the xenophobic nationalist that you think he is”.

  46. Gravatar of Postkey Postkey
    8. May 2016 at 00:56

    “Although the US government doesn’t calculate its assets and balance sheet every quarter like the private sector’s entities do, we do have at least a rough idea of the US government’s balance sheet. In fact, if you calculated just the value of federally owned fossil fuel resources these assets would dwarf the national debt by a margin of 8:1. And that’s not even touching the surface on the trillions in federally owned structures and land.”

    http://www.pragcap.com/say-americas-bankrupt-one-more-time/?utm_source=dlvr.it&utm_medium=twitter

  47. Gravatar of derivs derivs
    8. May 2016 at 03:20

    Postkey,

    Yep… debt should be analyzed against assets with payments against cash flow. Amazes me how people see debt as being completely detached from the asset that created it. Cancel the debt but keep the asset and then bitch about “Those bastards who came and dumped all of this debt on us!!!”

  48. Gravatar of Mike Rulle Mike Rulle
    8. May 2016 at 06:17

    Scott

    I wonder why the bond markets did not crater after Trump’s comments? We have a strange dude running for President, but no one but political morons take his off the cuff comments seriously :-).

    I find it interesting you do. Americans who dont vote in primaries dislike our two candidates. Or, they know it does not matter. I prefer Trump over Sanders, because the latter means what he says. Hillary simply has no views that I am aware of.

    Maybe when you start getting as mad at the thieves who have taken over the political system as you do at a bombastic reality show candidate, I will take your political comments more seriously.

  49. Gravatar of TravisV TravisV
    8. May 2016 at 06:18

    Noah Smith and Brad DeLong attack John Cochrane:

    http://noahpinionblog.blogspot.com/2016/05/brad-delong-pulpifies-cochrane-graph.html

  50. Gravatar of Major.Freedom Major.Freedom
    8. May 2016 at 06:38

    Mike Sax:

    “Major, do you consider Trump a libertarian?”

    No.

  51. Gravatar of Mark Mark
    8. May 2016 at 06:46

    Politically this is actually a clever position. Most voters will think it’s basically a free lunch and it sounds ambiguous enough that they may think there’s some unseen expertise behind it. The general public isn’t like to care much about america’s credit rating or future borrowing rates. Trump here is making good use of voter shortsightedness. Much like Tsipras in Greece. And like Tsipras, if he gets elected he may have that awkward moment when he realizes logic requires him to do the opposite of what he promised because he didn’t think the voters would truly be dumb enough to give him license to default on the debt.

  52. Gravatar of Major.Freedom Major.Freedom
    8. May 2016 at 06:47

    Other than his false claim that money is neutral, Ray touched on a point Sumner ought to answer.

    Sumner once claimed, even though I easily refuted it, that “higher interest rates with unchanged monetary base is stimulative”.

    Now surely, the prospects of a Treasury default would raise the risk premia on Treasury bills and bonds, and it will almost certainly be the case that the rates on corporate debt and other forms of credit will be affected as well.

    Given a default by the Treasury will not itself cause the monetary base to shrink (that is a Fed choice), does it not follow from Sumner’s own ridiculous premises that the prospects of a Treasury default would be “stimulative”, while an actual Treasury default will be Benjamin Cole’s dream of using dollars as toilet paper?

  53. Gravatar of Gary Anderson Gary Anderson
    8. May 2016 at 07:06

    “Should the public bail out the bondholders and the politicians?”

    Treasury bonds are important for the stability of the nation. I would like to see derivatives not exist. But trillions upon trillions of treasury bonds are used as collateral for the derivatives markets. Can you imagine the economic havoc defaulting on those bonds would cause?

    And for those who say Trump just says stuff, well you can’t take a chance on a bigot who just says stuff.

  54. Gravatar of Negation of Ideology Negation of Ideology
    8. May 2016 at 10:22

    “Should the public bail out the bondholders and the politicians?”

    What? That’s the first time I’ve heard of paying money back the the people you borrowed it from as a “bailout”. I guess I bail out my mortgage company every month!

  55. Gravatar of Derivs Derivs
    8. May 2016 at 11:29

    “Noah Smith and Brad DeLong attack John Cochrane:”

    Wow! I want whatever Cochrane was smoking when he made that graph.

  56. Gravatar of Massimo Heitor Massimo Heitor
    8. May 2016 at 11:55

    Sumner, says Trump is not a real nationalist, but just a con artist posing to be a nationalist: “I get great amusement out of imaging the look on your faces when you realize that Trump conned you.”

    Sumner also writes passionately and emotionally about the “epic global struggle of narrow-minded nationalism versus enlightened cosmopolitan neoliberalism”, and apparently is horrified that Trump is not a con artist, but a genuine nationalist.

    In other words, don’t vote for Trump because he’s not a real nationalist, but also don’t vote for Trump because he _is_ a real nationalist.

    “Also, America’s going off the gold standard was a type of default.”

    Good point. I’d like to hear the response to this.

  57. Gravatar of Andrew M Garland Andrew M Garland
    8. May 2016 at 13:12

    To Negation of Ideology,

    If you feel that you borrowed the money, then of course you are obligated to pay it back.

    I don’t feel like I borrowed it, so I am happy not to pay it back. I don’t accept the claim that because I couldn’t stop politicians from borrowing, I am then responsible for the debt.

  58. Gravatar of Scott Freelander Scott Freelander
    8. May 2016 at 13:34

    Trumpistas,

    Your hero is already flip-flopping on big issues. First, he says his tax plan is only the opening position in a negotiation, and he actually expects taxes on the rich to go up. Second, he says that now he’s looking at the minimum wage and that it probably has to go up. lol Check out his ABC This Week interview:

    http://www.hulu.com/watch/939440

  59. Gravatar of Scott Freelander Scott Freelander
    8. May 2016 at 13:37

    Scott,

    Reading the above, it looks like you were right. These conservative fire breathers have nominated a liberal populist to lead the Republican Party.

  60. Gravatar of Scott Freelander Scott Freelander
    8. May 2016 at 14:25

    I half thought Scott was right about Trump being a total conman leftist. I thought it was possible that he was losing it, like a couple of crazy uncles in my family. But no, Scott seems to be right and it looks like Trump will run to the left of Clinton on many, if not most or all issues. lol

    I would never vote for Trump, because I think he’s a narcissistic, classless, disgusting, blowhard demagogue, but I may be starting to like him solely for the demolition job he’s doing on the Republican Party and for exposing in an even bigger way than previously what fools most Republican primary voters are.

    Now, it’s liberal versus liberal, or Gary Johnson.

  61. Gravatar of ssumner ssumner
    8. May 2016 at 15:17

    Everyone, Thanks for confirming what a bunch of idiots you Trumpistas are. Having trouble understanding why default is not a bright idea? Seriously?

    Gary, You said:

    “and according to the article”

    Well there you are! Who can argue with “the article”?

    Andrew, You said:

    “This may be too charitable to Trump. Maybe he is a moron.”

    Have you ever seen the movie “Being There”?

    Massimo, The contradiction is only in your mind. Trump may or may not be a nationalist (who knows), but he is currently the leader of American nationalism.

    Mike, You said:

    “I find it interesting you do.”

    Just the opposite, I was one of the first to point out that Trump’s views on the issues should not be taken seriously. He’s been on both sides of almost every issue. Trumpism is a cause for concern, however, and needs to be defeated.

    Mark, You said:

    “Politically this is actually a clever position. Most voters will think it’s basically a free lunch and it sounds ambiguous enough that they may think there’s some unseen expertise behind it.”

    I very much doubt that people will think that defaulting on the Treasury bonds that back life insurance, pensions, etc, is a good idea.

    Scott, He flip-flopped on another issue? No!! Say it ain’t so.

  62. Gravatar of Massimo Heitor Massimo Heitor
    8. May 2016 at 15:26

    “Trump is a con man who will say anything to win votes”

    Saying anything to win votes is what politicians are paid to do.

    “Trump is a demagogue”

    A demagogue is just a politician whose popularity you resent. Similarly with populist.

    “Trump is narcissistic”

    All presidents are narcissistic. Modest, humble, meek, shy guy, wallflower types don’t become president.

    “Trump lies”

    All politicians lie. (I know Sumner says, no, all other politicians are angels who don’t lie, only Trump lies…)

  63. Gravatar of Bonnie Bonnie
    8. May 2016 at 16:22

    Perhaps this part of the first sentence from the quote was skimmed over on your first read?

    “In the event that the U.S. economy crashed…”

    I don’t like Trump, but this story says his default plan is conditional on the economy crashing, not that it’s part of his agenda.

  64. Gravatar of Steve Steve
    8. May 2016 at 17:05

    “Andrew, You said:
    “This may be too charitable to Trump. Maybe he is a moron.”
    Have you ever seen the movie “Being There”?”

    Yep. Instead of arguing Trump’s positions, it is far simpler and more accurate to say “Moron. QED.”

    Trump gets his ideas from the shows. The shows are part of the media-outrage complex. Thus Trump’s ideas are outraged from both sides of the aisle. Trump’s only true conviction is nationalism, which he gets from his Eastern European wife.

  65. Gravatar of Andrew M Garland Andrew M Garland
    8. May 2016 at 17:40

    To Steve,

    Regardless of Trump’s position, why is inflation better than a percentage default?

    That is, why should our politicians be able to borrow money, run the US into the ground, then put the cost on the public rather than as a risk and cost to the bondholders?

  66. Gravatar of Massimo Heitor Massimo Heitor
    8. May 2016 at 20:01

    “Massimo, The contradiction is only in your mind. Trump may or may not be a nationalist (who knows), but he is currently the leader of American nationalism.”

    Then, it makes sense for nationalists to enthusiastically support Trump. You are telling nationalists they are all being conned and suckered, etc. No, nationalists are voting for their leader. And, I might add, Trump is the leader of US nationalism, not racial nationalism.

    Who else should nationalists have voted for?

    My guess is you are so strongly, ideologically opposed to nationalism that you aren’t willing to answer that rationally.

  67. Gravatar of Anthony McNease Anthony McNease
    9. May 2016 at 06:34

    It’s insane, but this is what his old Boomer supporters want to hear. Never mind reforming entitlements to reduce the estimated $100 trillion in unfunded liabilities owed. Borrow, pay for my SS and health care then default after I die.

    Boomers are the worst. I’d like to trade 50 million of them to Mexico for 50 million Mexican workers. The economy would BOOM.

  68. Gravatar of Charlie Jamieson Charlie Jamieson
    9. May 2016 at 06:38

    This is what people find appealing about Trump, that he might be someone who can look at an issue from a fresh perspective and she some honesty on the subject.
    Right now the establishment position on the debt is to pretend it can be ‘paid back.’ Most of them have put together various schemes that would eliminate the debt — negative interest rates or inflation or targeting NGDP — but without telling you that is the intent.
    Once you stop pretending it frees your mind to consider the situation and start thinking of real ideas that people can get behind.
    Trump understands that money is just something the banks print up and give wealthy people.

  69. Gravatar of Anthony McNease Anthony McNease
    9. May 2016 at 06:44

    “Trump understands that money is just something the banks print up and give wealthy people.”

    That’s insane. Not just wrong. It’s whackadoodle.

  70. Gravatar of Charlie Jamieson Charlie Jamieson
    9. May 2016 at 07:06

    Anthony — it is 100 pct right. When you borrow money from a bank, the bank creates a deposit and a loan.
    Who gets loans? Wealthy people.
    And who gets the central bank to buy their defaulted mortgage security bonds, or clean up the mess when their savings and loans fail? Wealthy people.

    Trump has always been able to go to the banks and get money for his projects. If the projects do well, the revenue pays the interest on the loans. If the projects don’t do well, he defaults.
    Trump understands leverage. He has always been able to leverage his name and his properties. He knows the U.S. has all kinds of leverage it isn’t using.

  71. Gravatar of Anthony McNease Anthony McNease
    9. May 2016 at 07:29

    It’s 100% wrong. The Fed prints money not banks. Fractional reserves is a money multiplier but not printing money.

    “Who gets loans? Wealthy people.”

    This is also wrong. Lots of middle class and working class people get loans.

    “And who gets the central bank to buy their defaulted mortgage security bonds, or clean up the mess when their savings and loans fail? Wealthy people.”

    Recapitalizing some banks to keep the financial system functioning is not the same as bailing out “wealthy” people. Lots of wealthy people had their life savings wiped out by the financial crisis including, and especially, lots of bank shareholders. You are peddling falsehoods.

    “Trump has always been able to go to the banks and get money for his projects. If the projects do well, the revenue pays the interest on the loans. If the projects don’t do well, he defaults.”

    Yeah which is why Wall St is supporting Hillary and will continue to. Trump has stiffed too many people.

    “Trump understands leverage. He has always been able to leverage his name and his properties. He knows the U.S. has all kinds of leverage it isn’t using.”

    The only leverage a borrower has the the threat of default.

  72. Gravatar of Charlie Jamieson Charlie Jamieson
    9. May 2016 at 08:31

    Loans create deposits.
    If you want to say the Fed provides the deposits to the individual banks, fine.

    When mortgage backed security bonds failed, the Fed purchased those bonds, saving the banks and the bond holders. The Fed did not rescue homeowners, because they did not have political or economic clout.

  73. Gravatar of Anthony McNease Anthony McNease
    9. May 2016 at 09:10

    “Loans create deposits.”

    What? This doesn’t make any sense. Banks are just brokers between borrowers and lenders.

    “If you want to say the Fed provides the deposits to the individual banks, fine.”

    No I don’t want to say that. If I wanted to say that I would have, but only after hitting my head with a hammer. A lot.

    “When mortgage backed security bonds failed, the Fed purchased those bonds, saving the banks and the bond holders.”

    Yes they saved the institutions. Bond holders? Banks don’t issue bonds. Their lenders are depositors. The loan to deposit ratio at JP Morgan, for example, is about 60%. They have unused deposits laying around. There are no bondholders. If you are advocating the Fed wipe out depositors then you’re crazy. And the equity holders in banks lost big time. Wachovia, WaMu and others were wiped out. Others have taken years to recover and some still haven’t.

    You just don’t seem to be very knowledgeable about banking.

  74. Gravatar of Charlie Jamieson Charlie Jamieson
    9. May 2016 at 09:40

    Anthony, please read up on this. There as a Bank of England paper if you want the academic version, or just google loans create deposits.
    This is basic banking fact. Once you see this, it changes the way you think about money and economic policy.
    A bank doesn’t take a borrower’s money and pass it on to a lender. A bank creates a deposit and a loan.

  75. Gravatar of Anthony McNease Anthony McNease
    9. May 2016 at 09:49

    “A bank doesn’t take a borrower’s money and pass it on to a lender.”

    You’re right since that’s the exact opposite the way the cash flows work. The bank takes money from a lender (depositor) and passes it along to a borrower. The bank gets a spread in exchange for expertise in risk management and underwriting that the lender can’t do on its own and also for spreading default risk out amongst a large risk pool. The bank is just a broker in a lending transaction.

    “A bank creates a deposit and a loan.”

    The bank creates neither. It must attract people who want to do both. right now there are an awful lot more depositors than borrowers hence the very low loan to deposit ratio and very low rates for both loans and deposits.

  76. Gravatar of Charlie Jamieson Charlie Jamieson
    9. May 2016 at 10:12

    Oops, I reversed on the borrower/lender.
    But no, banks do not take money from depositers and lend that money. Do some research on this.
    There are not more depositers than borrowers. Your deposit is an asset, but it’s a debit to the bank. You are thinking of money as a hard asset.

    Tom Brown posts quite a bit in here. He could expand on this.

  77. Gravatar of Anthony McNease Anthony McNease
    9. May 2016 at 12:02

    “But no, banks do not take money from depositors and lend that money. Do some research on this.”

    Yes they do. The reason Capital One went out and bought a bank is to use the deposits to fund their credit card loans. the reason Square got trashed after announcing slower loan growth this quarter is because they are having trouble funding their loans without a deposit base. And I’m not the one who needs to do research on banking. Case in point:

    “There are not more depositors than borrowers.”

    Wrong. Go look at this the most recent quarterly earning release for JP Morgan Chase. On page 3 you’ll see loans of $847 billion and deposits of $1.3 trillion. The loan to deposit ratio is 64%.

    https://www.jpmorganchase.com/corporate/investor-relations/document/1Q16_Earnings_Supplement.pdf

    “Your deposit is an asset, but it’s a debit to the bank. You are thinking of money as a hard asset.”

    Yes banks borrow from depositors and then lend to borrowers. And your last sentence….I don’t even know what that means.

  78. Gravatar of ssumner ssumner
    9. May 2016 at 15:48

    Steve, You said:

    “Trump’s only true conviction is nationalism”

    What evidence do you have for that? Why does he hire foreign workers for his projects. And please don’t say you believe what he says.

    Charlie, You said:

    “This is what people find appealing about Trump, that he might be someone who can look at an issue from a fresh perspective”

    Lyndon LaRouche also provided “fresh angles”, why not vote for him?

  79. Gravatar of Major.Freedom Major.Freedom
    9. May 2016 at 17:04

    http://www.cnn.com/2016/05/09/politics/donald-trump-national-debt-strategy/index.html

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