Subject: Politico: Donald Trump’s Week of Playing with Financial Fire
From: "Miller, Lindsey" <[email-masked]>
To: Comm_D <[email-masked]>, "[email-masked]" <[email-masked]>
Date: Mon, 16 May 2016 06:02:48 -0700

Donald Trump’s Week of Playing with Financial Fire<http://www.politico.com/magazine/story/2016/05/donald-trump-2016-debt-comments-213891>

Maybe, if he hasn’t already seen it, Donald Trump should get himself tickets to the Broadway smash “Hamilton.” Because he may want to understand a little bit about Alexander Hamilton's playbook. One message that Hamilton, the nation’s first Treasury secretary, was clear about was this: Never do or say anything that might call your country’s credit into question; it will only cost you a lot more the next time you try to borrow. Careless talk by itself can badly damage an economy.
That is why as I have seen up close in sensitive economic times—from the Asian financial crisis of the late 1990s to the debt-limit showdown to our own financial crisis—U.S. presidents and top economic officials weigh every word on sensitive issues that could affect financial markets with great care and precision.
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Trump, by contrast, has said so many confusing things affecting U.S. credit in the past few days that, were he president, the markets would be reeling right now and interest rates could easily be rising. Absent from his comments about gaming the debt of the United States was any sense of the economic and historical importance of America maintaining an iron-clad commitment to stand by its word on our national debt, without any question. While I am an outside adviser to Hillary Clinton, there was also no shortage of Republicans who were also left wondering how much damage would have been done to the economy and markets if it had been a President Trump, while calling himself “the King of Debt,” had speculating how he might strategically seek to avoid paying full value on our debt.
Trump has long said that his private-sector wheeling and dealing would be beneficial experience in helping to managing economic policy. But that image was dealt a harsh blow when he told Andrew Ross Sorkin on CNBC: “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. It’s like, you know, you make a deal before you go into a poker game.”
For a nation that has distinguished itself for its 226-year commitment to protecting its “Full Faith and Credit,” it was stunning to hear the Republican front-runner use words like “poker,” “crashed” and “discount” while describing his policies on the national debt. His words gave the widespread impression he is advocating treating the national debt like a real estate transaction where if “the economy crashed” and investors feared that the debt might be worth, for example, only 75 cents on the dollar, he would swoop in as a whiz-bang deal maker to buy back our debt at only 76 cents on the dollar.
Imagine if we were in the middle of another debt limit stalemate like we had in 2011 (when I was watching from the White House, as director of the National Economic Council) and a President Trump told the world—or repeated to the world—that since the budget turmoil might be making U.S. debt looked shaky, he was open to buying back debt at a discount and was instructing his secretary of the Treasury to consider such options? What if he then went on for days confusing markets as to his true intentions while dropping lines about being the “King of Debt,” “playing poker” or “printing money?” Does anyone doubt that even without any congressional action such Trumpisms could lead to a global panic with unknown economic harm to the global economy and the long-term economic reputation of the United States?
What was just as disturbing to a wide cross-section of economic commentators were his attempts to retract, restate or clarify such statements.
When given a chance to withdraw his comments on This Week with George Stephanopoulos, he repeatedly passed. When the continued uproar led to his effort to offer clarification and reassurance the next day on CNN and Fox Business morning shows it also failed miserably, as several commentators, including Politico’s Ben White, pointed out. His most direct default disclaimer did little to disclaim or reassure: “You never have to default because you print the money” was a line that suggested the candidate seemed to believe that the U.S. president simply barks out orders to a subservient, nonindependent Federal Reserve.
Furthermore, Trump’s “print the money” line was bound to sound to global investors less like a comment on debt management or monetary stimulus than speculation by a soon-to-be presidential nominee on ways to avoid standing by our debt, whether through “hair cuts” or the printing press. Even Trump’s stated rationale for raising the entire discussion—the idea of buying back debt paying lower interest rate if interest rates rose—had people scratching their heads. Nowhere in his repeated promotion of this idea is there the recognition that if the United States were to buy such debt with low interest rates when interest rates were higher, it would by definition mean that we would have to replace the retired debt with borrowing at those same higher interest rates
Why should all this Trump debt, default and discount talk worry us? Consider three reasons:
First, however one interprets the exact meaning from his initial comments to his various attempts to retract or clarify, he has never shown any serious recognition that generations of Americans have benefited from a historical commitment started by Alexander Hamilton to ensure the full faith and credit of the U.S. is rock solid. In his 1790 Report on Public Debt, Hamilton stated “every breach … whether from choice or necessity, is in different degrees hurtful to public credit” and that “when the credit of a country is in any degree questionable, it never fails to give an extravagant premium upon all the loans it has occasion to make” (emphasis added).
Second, even when Trump was at least trying to provide reassurance on Monday morning, he seemed to think the entire issue was some form of personal attack from the “loser New York Times”—as opposed to any recognition that making U.S. credit “in any degree questionable” is a dangerous risk to the U.S. and global economy because U.S. Treasury obligations are the least risky financial asset on the planet and the benchmark against which the price of all other financial assets is set.
Nowhere, on the other hand, was there even the slightest awareness from Trump that he might be playing with economic fire because if Treasuries were seen as no longer risk-free that would shake to its very foundations literally the core assumption of global financial markets, meaning that the interest rate on every other financial asset—mortgages, car loans, credit for businesses large and small—could go up perhaps by a lot.
This economic reality did not require him to brush up on the post-Revolutionary War history of the founding of our national financial system. Our nation had just seen the damage of even a threat of default during the 2011 debt crisis—a threat that other, more successful billionaires such as Warren Buffet likened to threatening “a nuclear bomb” and that Michael Bloomberg called a “seismic event that says you can never depend 100 percent on America's word anymore.”
Third, one needs to consider these rather reckless comments on honoring our debts in light of Trump’s overall fiscal plan. So far, he has put forward a tax cut plan that both the Tax Policy Center and the Tax Foundation have estimated as increasing the national debt by more than $11 trillion in debt overn the next 10 year and that the TPC has estimated would increase the debt by a staggering $34 trillion over 20 years! Sending a signal that a new United States president would plan to run up the debt by untold trillions while “knowing that if the economy crashed you could make a deal” just might not be the best thing to do to enhance economic confidence in locating new jobs and investment in the United States.
With appreciation to Alexander Hamilton—and apologies to the United Negro College Fund—perfect public credit built up over more than two centuries is a terrible thing to waste.