Neil Irwin writing in the NYT Upshot
Donald Trump Is Coherent on Monetary Policy, but Not on Debt:
"Things got messier when Mr. Trump talked about his view of the national debt, seeming to apply his experience renegotiating with creditors for his casinos and hotels to the world of Treasury debt. “We’re paying a very low interest rate — what happens if that interest rate goes up 2, 3, 4 points?” he said. “We don’t have a country. We have tremendous debt, tremendous.” He advocated shifting toward longer-term debt, locking in current low interest rates for the federal government.
That isn’t unreasonable. The federal government’s budget could be strained if interest rates rise — though a world in which rates rise significantly is probably a world in which there is also strong economic growth, higher inflation or both. Either would mean more tax revenue, which would make the debt manageable despite higher rates.
But Mr. Trump also suggested something that would represent a radical shift in United States policy if we take him seriously. “I’ve borrowed knowing that you can pay back with discounts,” he said. He added, “Now we’re in a different situation with the country, but I would borrow knowing that if the economy crashed, you could make a deal.”
He specified later that he didn’t mean renegotiating bond terms, which countries like Argentina and Greece have done repeatedly. What he says he meant was buying back bonds at discounts after rates have risen, much as a company at risk of bankruptcy might buy its own bonds back at, say, 70 cents on the dollar and thus reduce what it owes. “I don’t want to renegotiate the bonds, but I think you can do discounting,” he said.
But typically the kinds of discounts on bond prices he is talking about occur when a country or company is at high risk of defaulting on its obligations. And to even threaten that would be a rejection of a principle that dates to Alexander Hamilton and the founding of the republic — that the United States’ promise to make good on its obligations is ironclad. Threatening to repudiate American government debts could also arguably violate a provision of the 14th amendment of the Constitution.
It is that reputation for creditworthiness and reliability that has made United States Treasury bonds the bedrock of the global financial system — a crucial difference between American government debt and the likes of Argentina’s, or, for that matter, the kind of debt owed on a failed casino project.
“I am the king of debt,” Mr. Trump said. “I love debt, I love playing with it. But now you’re talking about something that’s very, very fragile, and has to be handled very carefully.”