Donald Trump Brings Back the Talk of Default

If the economy crashes, “I’m going to give you back half,” the presumptive Republican nominee tells the nation’s creditors.

Chuck Burton / AP

Donald Trump’s bold—and potentially dangerous—plan to default on the nation’s debt is back.

In an appearance Wednesday morning on CBS This Morning, the presumptive Republican nominee returned to an idea he floated back in May: that if the U.S. economy “crashed,” he would offer to pay U.S. creditors less than what they are owed. “You go back and say, hey guess what, the economy just crashed. I’m going to give you back half,” he told Norah O’Donnell.

When Trump first suggested this pay-less approach to the debt, he was filleted by no less than the chairman of the Federal Reserve, Janet Yellen, who testified to Congress that the consequences of such a move would be “very severe.”

U.S. Treasury securities are the safest and most liquid benchmark security in the global financial system. They play a critical role in financial markets, and the consequences of such a default, while they're uncertain, I think there could be no doubt that it would be long-run harmful to the U.S. interests and, at a minimum, result in much higher borrowing costs for American households and businesses.

That assessment jibes with the warnings from other economist—both Democratic and Republican—who have said that the idea of defaulting, or trying to renegotiate, the debt would spook global markets and send the U.S. economy into a tailspin.

In truth, Trump’s suggestion is much more of a musing than an actual plan. His entire comments Wednesday morning on CBS were contradictory and at times incoherent. “I’m the king of debt. I’m great with debt!” he said at first, embracing a label that Hillary Clinton seized on during her anti-Trump economic speech on Tuesday. “Nobody knows debt better than me. I’ve made a fortune by using the debt. If things don’t work out, I renegotiate the debt. That’s a smart thing, not a stupid thing.”

Trump’s argument: Debt is good, and so is renegotiating it. “You go back and say, hey guess what, the economy just crashed. I’m going to give you back half,” he said.

But then he switched, clarifying that what’s good for Trump is not necessarily good for the country. “I like debt for me. I don’t like debt for the country. I like debt for my company. I don’t like debt for the country,” he said. “We are sitting on a time bomb,” Trump continued, pointing out that the national debt has soared in recent years to more than $19 trillion. “We have to start chopping that debt down.”

Debt is bad. Got it?

Then Trump shifted again, emphasizing that “chopping that debt down” or offering to pay less was not renegotiating it. “I wouldn’t renegotiate the debt,” he said. “That’s a different thing. That’s just a corporate thing.”

“So I wouldn’t do that,” Trump added. “But I think it could be a good time to borrow, and pay off debt. Borrow debt. Make longer-term debt.”

The most charitable explanation of Trump’s idea is that he would seek to restructure the nation’s debt in a way that would benefit the economy just like he did with corporate debt as a businessman. But of course, at times during that interview he said he would do no such thing.

There are a couple of risks associated with Trump’s lack of clarity. The first is that in the financial world, idle speculation from current or would-be presidents can have actual effects on financial markets, which can cost real people real money. Trump’s low standing in the polls at the moment may mitigate any fallout, but the closer he gets to Clinton and the closer it gets to November, the greater the impact these comments could have. The second is that most U.S. voters are not financial experts, and Trump’s suggestion for restructuring, or renegotiating, or just not paying all of the nation’s debt sounds great in theory—especially when politicians of all stripes have made the debt ceiling sound like an average credit card. (Just make the minimum payment!)

Trump could help clear things up by putting out an actual plan and explaining how he intends to run the nation’s finances. But unless he commits to staving off an unprecedented default, he probably won’t satisfy economists or the markets, even if his tough talk and business savvy sounds appealing to regular people.