Donald Trump is finally making an argument that mainstream economists can agree with.
After making comments last week in which he argued that he could reduce the national debt by negotiating with creditors to take less than they are owed, Trump was on the receiving end of criticism that he was putting the nation’s credit at risk by threatening to default on the debt.
Trump struck back on Monday, suggesting that it was impossible for the U.S. to default on its debt because the Federal Reserve can always print money in order to pay creditors. “People said I want to go and buy debt and default on debt, and I mean, these people are crazy. This is the United States government,” Trump said in an interview with CNN. “First of all, you never have to default because you print the money, I hate to tell you, OK?”
Politicians—like Trump himself—often use the United States’ national debt of $19 trillion as way to scare voters into thinking that the United States will become the next Greece, a country that has had to raise taxes, slash spending and go hat in hand to the European Union asking for bailout money after credit markets decided that lending to the country was too risky. But Trump is right. Unlike Greece, the United States prints its own currency, and therefore could rely on the Federal Reserve to buy up unwanted federal government debt, essentially paying off our debt with money created out of thin air. The downside to this strategy is that if the federal government had to rely on the Fed to buy up its debt, it would likely be accompanied by very high inflation.
That’s why the global finance community considers U.S. government debt a “riskless” asset, and it’s why high profile economists from Republicans like Ben Bernanke and Alan Greenspan to left-leaning economists like Paul Krugman have consistently argued that America can’t end up like Greece.
The reason, however, that Trump finds himself in the awkward position of agreeing with centrist, establishment eggheads like Ben Bernanke is that he has consistently espoused mutually exclusive positions on the national debt. Like other politicians on the right, Trump likes to mine the anxiety a certain segment of the population has over the country’s $19 trillion in debt, especially when he can use it as evidence of the incompetence of career politicians.
But while a lot of people are uncomfortable with debt, even more people are uncomfortable with the sacrifices necessary to reduce that debt. So Trump has campaigned on protecting entitlements, increasing military spending, enacting the largest tax cut in American history, and eliminating the debt. To make all of these promises add up, the economy would have to grow at 16% per year in real terms, or about 8 times as fast as it’s growing today.
The truth of the matter is that Trump can’t possibly do all the things he’s promised to do, and when he’s asked for specifics in interviews, he prevaricates. And so we get to his latest turn at this game, which to argue that the U.S. could pay down its debt in part by buying back bonds at a discount. The only problem is that creditors will only agree to such an arrangement in an environment of rising interest rates (i.e. not now), and it would only work to actually reduce total debt loads if the U.S. didn’t have to borrow the funds it uses to buy back the debt (i.e. we’d need to already have a balanced budget).
But Trump has put forward no credible plan for getting to that place of budget balance, and so his riffing in interviews over the past couple days about his “strategies” for reducing the debt are nothing more than the real estate magnate buying time until his interviewer changes the topic.
At the same time, it’s not unreasonable to try to draw some conclusions from the trends in Donald Trump’s rhetoric over the course of the campaign. While he has remained steadfast in some promises—like his desire to build a wall on the Mexican border and to round up the 11 million illegal immigrants for deportation—he has changed his position on the national debt almost 180 degrees.
Since claiming in an interview with the Washington Post in March that a Trump Administration would be able to eliminate the national debt by his second term in office, the presumptive Republican nominee has backed off his debt-reduction pledges, telling Fortune that he’d “rather not be so aggressive” when it comes down to paying the debt, and reminding us that he also wants to spend money on infrastructure and the military.
Considering that it’s impossible to do all the things that Trump has promised to do, voters must choose which promises they think he’s most likely to keep. It’s been a couple months now since The Donald has promised to eliminate the debt, though he has continued to say that he’ll devote resources to infrastructure and building up the military. It would be reasonable therefore to assume that Donald Trump’s complaints over U.S. debt loads were just an act for Republican primary audiences, and that a man who has been very comfortable racking up debt during his business career would show the same comfort levels as the leader of the U.S. government.
This is a defensible position. Given the fact that there are many productive places for the U.S. to invest borrowed money—from infrastructure to education to basic research—and that interest rates are so low that investors, after inflation, are essentially paying the federal government to borrow money, it doesn’t make a ton of sense to rank federal debt loads as the nation’s first or even fifth biggest problem. Trump’s recent comments suggest that he is starting to understand this, though if he admitted as much he’d no longer be able to blame Washington for racking up all that debt in the first place.