The most economics work that I do these days is balancing my household accounts, paying my bills on time, and making sure that we carry no debt aside from our mortgage. I’ve moved long past the days of ECON 101 and the college classes that I once took. But even I heard Donald Trump’s comments on being “the king of debt” with more than a healthy dose of concern.

Well, Trump is doubling down on his love of debt. And we don’t need to worry about defaulting – not when the Treasury can just print more money!

“I said if we can buy back government debt as a discount. In other words, if interest rates go up and we can buy bonds back as a discount, if we are liquid enough as a country we should do that. In other words, we can buy back debt as a discount,” the presumptive Republican nominee said in a telephone interview on CNN’s “New Day.”

Those who said he wants to buy debt and default on it are “crazy,” he added.
“This is the United States government. First of all, you never have to default because you print the money. I hate to tell you. So there’s never a default. But the point is it was reported in the New York Times incorrectly,” he said, referring to a critical Times article that ran on Friday.

All hail the King of Debt.

“It was reported in the failing New York Times and other places that I want to default on debt,” Trump said. “You know, I’m the king of debt. I understand debt probably better than anybody. 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 know what you’re doing. If there’s a chance to buy back debt as a discount, interest rates up and the bonds down and you can buy debt. That’s what I’m talking about.”

No one would ever confuse business dealings with government practice, Trump suggested, remarking that the government would not ask creditors to buy back debt at a discount.

“In business, that happens all the time. I bought mortgages back when the market went bad, I bought mortgages back at tremendous discounts. And I love doing it. I mean, there’s nothing like it. Actually, it gives me a great thrill,” he said. “But in the United States with bonds, that won’t happen. Because you know, in theory the market doesn’t go down so that you default on debt. And that’s what happened.”

This is your nominee, Republicans. Better economic minds than mine were downright horrified.

In short, any voluntary deal with the market would require the government to pay fair value. And unless you think the Treasury bond market is mispriced (and it is the most liquid market on the planet), the government is unlikely to profit. It might be sensible for the government to alter the patterns of new Treasury issuance; borrowing long-term to lock in low rates for a generation. The Treasury has discussed the idea of refinancing illiquid bonds to improve market liquidity. But that is quite a different idea from Mr Trump’s proposal; the interest savings would be trivial.

A forced deal, of course, would count as a default. Treasury bonds are at the heart of the financial system. Banks use them as collateral for loans; insurance companies hold them as reserves; pension funds own then to fund retirement benefits; mutual funds own them as well. Any default within the system would have cataclysmic consequences for the economy that would far outweigh any gains in refinancing costs. To cap it all, the Federal Reserve owns almost $2.5 trillion of Treasury bonds and the Social Security Fund some $2.8 trillion. So the government would, in part, be defaulting to itself.

To sum this up: Trump believes that the United States will never default on its debt because we can print more money (how did that work out for Zimbabwe, again?) and because American money is attached to bonds. Of course, there has to be a marked FOR those bonds, and as the article at The Economist points out, the bond market is stable BECAUSE those bonds always keep their full value.

But with Treasury bonds, investors expect to get 100 cents on the dollar. It is the risk-free asset that underpins the entire global financial system.

Reason.com’s Scott Shackford speculates that Trump only thinks in terms of “deals,” but doesn’t have any other playing cards in his deck.

Trump’s perception of how debt works (“I am the king of debt. I do love debt. I love debt. I love playing with it,” he said) could help explain why thinks he can promote fiscally incoherent polices that call for both tax cuts and military spending increases (while maintaining Social Security). Trump believes that everything is up for negotiation—everything has the potential for a deal. This is not a bad trait for either a businessman or a politician, but it can reach a point where it becomes a default response when unable to actually explain how he’s going to get from Point A to Point B in policies. For Trump, making a “deal” is his variation of candidates like Bernie Sanders who want to paper over fiscal gaps in policy plans with promises to make rich people and corporations pay for it.

If Trump’s love of manipulating debt actually became the fiscal policy of the United States, there is no end to the world of economic hurt that we could find ourselves in.