After being criticized by economists for suggesting that the U.S. should renegotiate its national debt, presumptive Republican nominee has Donald Trump has stated the the country will never default because it can print its own currency.
On May 5, Trump told CNBC that the country should renegotiate its debt and that he would he would be well-equipped to so because he is “the king of debt.”
Given the choice between the U.S. paying its national debt in full or doling it out in partial payments, the business mogul answered, “I would borrow, knowing that if the economy crashed, you could make a deal. And if the economy was good, it was good. So, therefore, you can’t lose.”
This sunny take on the national debt was blasted by the Clinton campaign, which issued a statement from former Secretary of State Hillary Clinton’s economic adviser Gene Sperling.
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“[Trump’s comments] would risk a global financial meltdown, drive up interest rates for Americans for decades, and seriously harm middle-class families,” Sperling said, according to Politico.
“For Donald Trump to casually announce he would consider defaulting on our debt for the first time in our history shows a stunning lack of responsibility and understanding of the global economy,” Sperling added.
On May 9, Trump clarified his comments, dismissing his detractors’ claims that he was endorsing a default.
“People said I want to go and buy debt and default on debt, and I mean, these people are crazy,” Trump told CNN. “This is the United States government. First of all, you never have to default because you print the money, I hate to tell you, OK?”
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Trump added that his approach would be to buy back the debt at a discounted price if interest prices rise. He also asserted he was an expert on debt.
“I understand debt better than probably anybody,” Trump continued. “I know how to deal with debt very well, I love debt -- but you know, debt is tricky and it’s dangerous, and you have to be careful and you have to know what you’re doing.”
Trump’s observation that the U.S. can print more money signaled that more currency would be circulated to counter a default on debt. This is inflation.
In March 2013, economic consultant Neil Irwin penned an opinion article in The Washington Post criticizing this theory.
“First, the items in the federal budget that are the overwhelming drivers of long-term deficits wouldn’t really be helped if the government were to unleash massive inflation,” Irwin wrote, adding that this would inflate the costs of Medicare, Medicaid and Social Security.
“In other words, if the Fed becomes feckless and allows double-digit inflation to take root, the cost of medical care will rise by double-digits too ... So inflation wouldn’t offer Congress much of a way out of its deficit problems; indeed, it could make them significantly worse,” Irwin concluded.