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Gentlemen prefer bonds

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dk

Some comments on Trump’s suggestion that he’ll reduce the national debt by getting creditors to take a haircut:

Donald Trump is an ignorant fool. He doesn’t know anything about anything, and worse yet he doesn’t know that he doesn’t know anything about anything. (In psychology, this is known as the Dunning-Kruger effect). The sum total of his talents consists of having the foresight to be born to an immensely wealthy father, and possessing a Rain Man-style idiot-savant capacity for self-promotion. That’s it.

A couple of days ago he provided a frighteningly clear illustration of the bottomless depths of his ignorance when he suggested that he might reduce the national debt by using his deal-making skills to get America’s creditors to accept less than full payment for the nation’s debt obligations to them.

That is an idiotic suggestion, which could only be made by someone who has no idea how bond markets, the American legal system, and the world economy work. . .

In the wake of his mind-blowingly stupid comments, some observers have tried to rationalize Trump’s astonishing ignorance. For example, Matt Yglesias writes that “Trump is a businessman, and in terms of thinking like a businessman his idea makes sense.” The idea here is that it sometimes makes sense for a business to threaten not to pay its debts, because if it files for bankruptcy creditors will get little or nothing. Creditors will then accept what in the trade is known as a “haircut” – less than what they’re legally owed – to avoid this outcome.

But this is giving Trump far too much credit. Real businesspeople, as opposed to a lifelong self-promoting scammer like Trump, understand perfectly well that public and private debts are not equivalent, and that governments (and most especially the U.S. government) can’t operate like private businesses in regard to their debt obligations. That is why real businesspeople invest in U.S. bonds, despite their current near- zero rate of return: because they know that the U.S. government — assuming it isn’t taken over by the maniacs at the head of the contemporary Republican party – can’t and won’t engage in strategic default.

(After the storm of criticism his comments provoked, Trump characteristically claimed this morning not to have said what he clearly did say).

Yglesias’ reaction is an understandable defense mechanism; it’s one that we’ll be seeing a lot of between now and November. He can’t allow himself to contemplate just how ignorant Trump really is, because that would force him to contemplate the extent to which the Republican party has actually gone mad. In other words, Donald Trump’s impending nomination is merely a symptom of a much deeper disease.

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  • These are the same people, I presume, who attempted (with some success) to destroy Greece so as to not take a haircut?

    Also, Trump may not care about his own fiscal reputation, but destroying America’s would have profound consequences.

    • mikeSchilling

      And the same people who insisted it would be the end of the world if the bailed-out banks were forced to take haircuts on mortgages.

    • ajay

      These are the same people, I presume, who attempted (with some success) to destroy Greece so as to not take a haircut?

      I don’t know what you’re talking about here: Greek debt has had several haircuts. The first one was imposed in 2011, 53.5% of face value.

  • UserGoogol

    That’s not what the Dunning-Kruger effect is. In the actual studies showing the Dunning-Kruger effect, it’s an upward sloping line, not a sharp peak. Low-talented people tend to rate themselves as average, and highly-talented people tend to rate themselves as merely above average, without obvious swerves in between.

    When people are incompetent and rate themselves as geniuses, that’s not merely a function of not knowing what they don’t know, but being self-important enough to think that they must be really great without much evidence. Which is something common enough that the folk version of Dunning-Kruger has overtaken in the public eye, but in reality people often are aware of their own ignorance. You don’t have to know the full extent of a subject to know that you only barely know the beginnings of it. But Trump’s background has fostered in him a feeling that he is great at everything despite all the evidence against that.

    • Paul Campos

      Graph replaced with a better one

    • ajay

      The Dunning-Kruger-Dunning-Kruger effect is the prediction, now verified, that people who don’t know what the Dunning-Kruger effect is will still refer to it as though they did.

  • Tom Till

    The Donald is just saying out loud what the rest of the GOP has been….saying out loud for years re: default. The usual Party of Ideas people (Commentary, etc.) who helped create the Party of Trump claim The Donald’s some kind of alien virus, yet Tom Cotton, their biggest heartthrob, loves him some default. Once again, Trump proves that he understands the GOP and its voters a whole lot better than its self-anointed guardians of virtue.

    • Brien Jackson

      It’s not obviously true that “real businessmen” really understand the difference between public and private debt either. A whole bunch of them vociferously advocate for “running government like a business” after all.

      • Snarki, child of Loki

        A whole bunch of them vociferously advocate for “running government like a business” after all.

        By which they clearly mean “loot it for everything they can get”.

        • njorl

          If I were CEO of the USA Inc. I would jack up taxes as high as the country could bear, lay off most of the work force, show the board of directors the huge increase in profits and collect a $400 million dollar golden parachute at the end of 4 or 8 years.

          The next guy might have a little trouble.

          • Ken

            You forgot selling off the assets.

            (Which is an actual plan on the right, at least for Federal lands. For that matter, it’s been followed at many levels of government for some years under the name “privatization”.)

            • Much as Zimbabwe is currently selling its elephant population to China, having sold everything else.

          • mikeSchilling

            Merge with Canada and insist that I was a success because I doubled our area.

            • Too many obvious synergies. A real visionary like Fiorina would insist on Venezuela.

      • NonyNony

        It’s not obviously true that “real businessmen” really understand the difference between public and private debt either

        I was going to say this as well. Trump is appealing to small businessmen because among that group are people who honestly think that his ideas about “offering a deal” to the creditors is the way to do business. They do not understand the difference between public and private debt and, more to the point, they don’t want to. They want to think in easy analogies and assume that if they can run a roofing company or a 12 store burger franchise, they could also run the country.

        (Not that all small business owners are this ignorant – you get a lot of variation in that group. But there’s certainly a core of them who think that business solutions are always the right solutions because, hey, it works for my shoe store why wouldn’t it work for the National Debt?)

        • JackII

          But even in business using the threat of default will have a negative effect on one’s ability to borrow thereafter. Given Mr. Trump’s spotty past history regarding bankruptcies I’m curious to know what rates he is able to get on any current borrowing he may do within the Trump business empire.

    • njorl

      The GOP absolutely does NOT want a general haircut imposed on bond holders. That would screw a lot of rich people. Also, the only mechanism for prompting people to take below nominal value on their bonds would be to intentionally gin up a lot of impending inflation. They don’t want that either.

      The GOP wants to completely default on the bonds held by the Social Security trust fund. Or, more accurately, it wants to forbid the trust fund from collecting on their bonds. An actual default would be unconstitutional, but nothing in the Constitution prevents the SSTF from just tearing up (figuratively) their treasuries.

      • lunaticllama

        If the GOP absolutely does not want a general haircut imposed on bond holders, why have Republicans been promoting U.S. default via the debt ceiling for six years? Default on U.S. and the related financial crisis has been a policy position promoted by Republicans since 2016. I don’t know why, we don’t take them seriously: they have advocated for default and financial crisis as one of their goals for 6 years – they should be held responsible for this policy position.

        • NonyNony

          I dunno. I think there are quite a few of them who are idiots and who are actually advocating for this position because, well, they’re morons.

          But it started as standard political posturing – it’s something that was done before by politicians on both sides of the aisle who wanted to make a point by voting against debt ceiling increases while being assured that their vote was basically symbolic. I find it stupid, but it is part of how the sausage has historically gotten made. (I’d say that the GOP has bought into the “Noble Lie” more than the Democrats, but the Dems fall into this trap too. The Dems in the Senate took a symbolic vote against the debt ceiling increase of 2006 but knew that the GOP would pass it.)

          The problem is that the Republican party has now gotten taken over by the people who actually believed the “Noble Lies” that the politicians were telling them.

        • If the GOP absolutely does not want a general haircut imposed on bond holders, why have Republicans been promoting U.S. default via the debt ceiling for six years?

          They haven’t. They’ve been playing default chicken in order to try to force other concessions. They’ve blinked every time thus far.

          If the Republicans actually had a policy of defaulting, they could have forced it several times already.

          ETA: Of course, they wouldn’t have controlled the structure of the default.

          • NonyNony

            I think you’re making the mistake that we all have been making in thinking that Republican politicians are working together in some kind of planned way.

            I don’t think that’s true anymore. I think that post 2010 the politicians in the GOP have been in “every man for himself” mode. They coalesce into certain factions, but they are not unified in their actions.

            So there is a faction that wants to force a default. There’s another faction who doesn’t want to force a default but also doesn’t want to lose a primary from the right. Those two groups working on their own goals make it look like a unified Republican party playing chicken and then blinking, but in fact that isn’t what’s going on at all – it’s just the pols in the second faction pushing it as close to default as they can before giving in in order to walk the tightrope that they’re walking with their voters.

            • jim, some guy in iowa

              in the end it kind of turns out they’re anarchists. or cats

              • the shadow

                This is unfair to anarchists.

            • muntz

              +1. The hard core crazy right is happy to blow the whole thing up. The business wing of the party is horrified at such behavior. I agree that getting primaried from the right does tend to keep the business wing of the party a little quieter.

            • lunaticllama

              I think that the minority of anti-debt ceiling Republicans in the House truly do not believe the debt ceiling should be raised and that the resultant chaos preferable. Their rhetoric and voting have been very consistent on this point. I think Nony is correct that other Republicans have been putting on a show of temporarily appeasing these conservatives (or anarchists as noted above) to avoid primaries.

              • I think that the minority of anti-debt ceiling Republicans in the House truly do not believe the debt ceiling should be raised and that the resultant chaos preferable.

                Yes, but even this is different than wanting a default. What they want is big tax and spending cuts. They prefer a default to various other options.

                But the republican party as a whole does not prefer a default as witnessed by their blinking.

                (And no, talking about the party “as a whole” does not entail talking about them as uniform. Sheesh.)

            • I think you’re making the mistake that we all have been making in thinking that Republican politicians are working together in some kind of planned way.

              I don’t think so.

              I’m refuting the idea that “they” want to impose a haircut. If they are disorganised, that works in my favour.

              I don’t think that’s true anymore. I think that post 2010 the politicians in the GOP have been in “every man for himself” mode. They coalesce into certain factions, but they are not unified in their actions.

              There are factions, but that’s not the same as “every man”.

              But anyway, even so, there’s no faction I know of that specifically wants to default. Everyone nominally wants to use *threat* of default to force concessions. The only difference is how far they are willing to go.

              So there is a faction that wants to force a default.

              No there isn’t. Or at least you have to point to at least some *rhetoric* to this effect. The Cruz contingent was specifically *willing* to go to default, but default wasn’t *the goal*.

              There’s another faction who doesn’t want to force a default but also doesn’t want to lose a primary from the right.

              I’d be more convinced with some specifics.

              Those two groups working on their own goals make it look like a unified Republican party playing chicken and then blinking, but in fact that isn’t what’s going on at all – it’s just the pols in the second faction pushing it as close to default as they can before giving in in order to walk the tightrope that they’re walking with their voters.

              So, it’s clear that the Republican party is playing chicken and blinking.

              That doesn’t require that they are acting as one. A factional split explains *why* they played chicken then blinked. Basically, the far right faction isn’t able to hold the coalition together through to default.

              You are definitely arguing with someone else ;)

              • BobBobNewhartNewhartSpecial

                Basically, the far right faction isn’t able to hold the coalition together through to default.

                The above seems to contradict the below.

                So there is a faction that wants to force a default.

                No there isn’t.

        • njorl

          Even the debt ceiling shenanigans wouldn’t result in a haircut for bond holders. The US is constitutionally required to pay its debts. If the debt ceiling were not raised, and the president treated the debt ceiling as binding, then the government would be required to stop incurring new debt. That means furloughs, cancelled purchases and so on. It might also mean that the federal government would instruct its own holders of bonds to forego cashing them in. What could not happen without a constitutional amendment would be for the government to refuse to honor a bond cashed in by a private bondholder at full value.

        • ScottK

          It would be enlightening to ask the Republicans who are OK with defaulting on the debt how much they think is owed to China. Given how Republican rhetoric is always about “borrowing money from China”, I suspect they’d say something north of 50%, when the real value is about 6-7%.

          It’s the same deliberately engendered innumeracy that leads people to think the US spends orders of magnitude more than it really does on ungrateful foreigners or welfare leeches or NASA eggheads or whatever.

  • Cheap Wino

    You’re doing yourself a disservice when you only link to the latest Sarah Palin idiocy when saying the GOP is the party of morons. Their party is rife with ignorance, mostly born out of stupidity. We have a local state rep who until very recently was telling people from the next small city over from her hometown, that she couldn’t help them, they were not part of their district. Yet they are and she has been on the job for almost two years. She’s just one of the maggots feeding on the GOP ignorance generator.

    • jim, some guy in iowa

      I take it this is a district where anyone running as an (R) gets elected without having to get out and campaign?

      • Cheap Wino

        Sadly, yes. Mostly rural, used to be a very strong D area — has been slow to follow the national trend of racist whites defecting to the GOP but the switch is almost complete now. Her particular district has the university (which she did not know until recently) so she might be vulnerable. Might help if our local Green idealist weren’t sucking up voter energy — she’s the kind of fool who thinks the ACA was a sellout, both parties are the same, yada, yada, yada.

  • Karen24

    I don’t think he’s stupid; I think he’s far more evil than we ever imagined. Trump can afford to buy T-bills, which at the moment are the investment equivalent of a chest buried in the back yard. If he can make T-bills risky again, he gets a higher rate of return. The entire world goes to Hell, but he gets to Magic a smaller amount of money into a larger one.

    • ajay

      Trump can afford to buy T-bills, which at the moment are the investment equivalent of a chest buried in the back yard. If he can make T-bills risky again, he gets a higher rate of return.

      That isn’t quite how US government securities work. They pay a fixed rate of interest. (T-bills don’t; they redeem at face value.) If you hold a $100 Treasury note that pays 3%, then this year you get $3. If next year the economy of China collapses and takes the world into a depression, then next year you get $3. If the US economy grows amazingly fast and the streets are paved with gold, you get $3. If everyone in the world except you and the US government converts to radical Islam and decides that US government securities are haram and refuses to buy them, you get $3.

      If Trump succeeds in talking down the value of his own US govvie investments, then he won’t make any more money on the interest, because they’re fixed-rate products.

      • LosGatosCA

        All bonds are valued for trading at the discounted value of future interest payments, not face value.

        Higher inflation will cause the discount rate on all future interest payments to go UP and the value of ALL bonds to fall, even US T-Bills.

        Higher risk = lower value on existing bonds and higher rates on future bonds.

        Indexed bonds will have their payments go up to protect the principle.

        In no case does default risk increase yield a higher return to anyone, except people who short bonds in anticipation of an interest rate increase (see Eric Cantor who tried this).

        If you hold a bond to maturity you will get face value when redeemed, assuming no default.

        • ajay

          except people who short bonds in anticipation of an interest rate increase (see Eric Cantor who tried this)

          I hadn’t heard that – do you have a link? It sounds kind of insider-tradery.

        • Guy_Incognito

          Gatos is right. The face value of the bonds changes in proportion to their perceived risk and the interest rate environment. The fixed coupon (or original issue discount) is irrelevant for bonds trading int the secondary market.

          • Ken

            Does the bonds secondary market have orders of magnitude more activity (and influence) than the original-issue market? I understand that’s the case with futures, where the ostensible users of the market – the classic “farmers and bakers who want to fix a price for wheat” – are more-or-less irrelevant to its operation.

          • ajay

            The face value of the bonds changes in proportion to their perceived risk and the interest rate environment.

            I think you meant “market price” rather than “face value” there.

  • Cheerful

    There are three new polls out showing Trump and Clinton approximately tied in Florida, Pennsylvania and Ohio (it’s also one of the few polling firms to try Bernie lately, who comes in 1-2 points ahead of Clinton in Florida and Ohio, and several points in Pennsylvania IIRC)

    http://www.politico.com/story/2016/05/trump-clinton-florida-ohio-pennsylvania-222994

    At what point, oh polling aficionados in this commentariat, do I start freaking out about general election polling? I assumed I could wait until summer, but the tremors and twitching are starting early.

    Also, the American public again baffles and dismays me.

    • NonyNony

      When the polling averages start bearing that out.

      Remember – the polling companies have a vested interest in this being a horse race. Rassmussen is known to have bad polls that tighten up when they get closer to the election. Quinnipiac has also been accused of bad methodology (haven’t clicked through to see which single outlier poll is being fronted by Politico for their “THIS IS STILL A HORSERACE – WIN THE MORNING” narrative this week, but I’ll bet you a dollar it’s one of those two).

      You need to not freak out and watch the polling averages, not the outlier polls. You’re going to see a lot of variation and if you freak out every time a poll shows Trump up (because Rassmussen is messing with the likely voter model again) then you’re going to have a heart attack by November.

      • Cheerful

        It was Quinnipiac at politico, and it wasn’t really clear how they were screening their population (i.e. whether going for likely voters).

        I will stick to a polling average regime and try to stay healthy. Also grapefruit.

        • NonyNony

          Having clicked through and read the politico link – another thing to keep in mind is that you should expect Trump’s floor to be 46% of the popular vote and all of the states that John McCain won in 2008.

          I actually think that he’ll get at least 47% of the popular vote and all of the states that Mitt Romney won in 2012.

          So while I’m confident that Trump won’t win, I actually think that the odds of the results of this election being much different from 2012 are slim. Because as I’ve said many times – the GOP could run a rabid monkey as their ticket and still get at least 46% of the vote (and it looks like this is the year that we test that theory). And yes, I include Republican women in that mix – Republican women are going to line up behind Trump just like they always line up behind the Republican. He may lose a few at the margins, but not enough to significantly affect his vote totals or the states that he’ll win.

          In Ohio, for example, Rmoney got 48% of the vote to Obama’s 51%. That’s actually right in line with the polling that is in that article. In Florida, Romney got 49% of the vote to Obama’s 50% of the vote – again right in line with the polling. It’ll be close in some of these swing states – that’s why they’re called swing states – but don’t panic about it.

          • Scott P.

            Except that if you re-ran the 2008 election in 2016, Obama would win by a larger margin and win more states, because of demographic changes. So 2008 shouldn’t really be the baseline.

    • At what point, oh polling aficionados in this commentariat, do I start freaking out about general election polling? I assumed I could wait until summer, but the tremors and twitching are starting early.

      First, always look at multiple polls or polling averages. They are obviously slower to update, but any given individual polls can be pretty far out of wack.

      Second, consider historical data. From the same article:

      At roughly the same point in 2012, President Barack Obama led Mitt Romney by single digits in Ohio and in Pennsylvania, while Romney led by 1 percentage point in Florida.

      Third, it’s always worth being concerned. It’s better to have good polls than not good polls. But it’s probably wise to wait for the conventions to panic.

  • That Salon article is a little unfair to Yglesias because it ignores the gigantic “BUT” that came immediately after the quoted sentence. But otherwise, obviously spot-on.

    • Guy_Incognito

      I was going to say the same thing. Yglesias’s article is actually a smart exploration of Trump’s statement. It’s basically “Businessmen is like X, but really gov’t is like Y”.

      Threatening a haircut CAN be good business. Hey, it can even be good gov’t sometimes for peripheral economies. But it’s unbelievably reckless when you’re talking about the world’s reserve assets. You can make that point without trashing a totally reasonable Yglesias article.

  • CaptainBringdown

    Yglesias’ reaction is an understandable defense mechanism; it’s one that we’ll be seeing a lot of between now and November. He can’t allow himself to contemplate just how ignorant Trump really is, because that would force him to contemplate the extent to which the Republican party has actually gone mad.

    I don’t think this is a fair reading of Yglesias. The second part of his piece he makes it pretty clear that he recognizes Trump’s take on US debt is sheer lunacy. See the headers “Applying this idea to the United States would destroy the economy” and “Trump doesn’t know what he’s talking about.” He concludes by saying “[i]t’s understandable that a real estate developer might assume that what works in real estate would work in economic policy, but it’s not true. And Trump hasn’t bothered to check or ask anyone about it.” That sounds to me like Yglesias has contemplated Trump’s ignorance.

  • efc

    I think it’s more a result of marinating in the government is like a “(household, business, whatever)” rhetoric that suffuses republican arguments about macro policy. When the party continually makes economic policy suggestions based on the idea there is no difference between a household budget or a businesses budget and the government’s budget why wouldn’t a politician running under that party’s banner make stupid suggestions that fit into the established framework?

    What’s hilarious is how the GOP big machers are out there denouncing the idea as stupid and ignorant even though for the past 8 years they have said macro related stuff that is arguably even stupider and less grounded in reality than what Trump has been saying about the bond market (at least there is some way one can twist and contort Trump’s thoughts into something partially true. The “belt tightening” during a recession talk was stupid no matter how you looked at it).

    • lunaticllama

      Republicans (albeit a minority) have been advocating for default on U.S. debt for six years. Trump’s thinking is very much in line with a Republican policy position they have held for quite some time now.

    • Srsly Dad Y

      Dean Baker made that point today. If you start out caring about the aggregate debt-to-GDP load (which you shouldn’t, but lots of people do), it would make sense to issue new Treasury debt, at higher interest rates, and buy back the old debt cheaply. It’s a stupid policy, but only because it builds on a stupid GOP/Simpson-Bowles premise, not because it wouldn’t succeed in reducing the face value of the national debt.

      It’s going to be important to remember that Trump is willfully ignorant but actually has a decent IQ and understands some financial things better than a lot of Republicans do.

  • ichininosan

    My understanding of Dunning-Kruger — admittedly based on a This American Life interview with Dunning two weeks ago and not the actual study itself — is that there is a significant gap at the top of the graph as well (not represented in the graph above). Which is to say that the intelligent / competent individuals tend to assume the average person is more intelligent than they actually are. This has significant (perhaps more significant) implications than the common use of Dunning-Kruger to point only that the ignorant are blissfully so. It explains why the average person is pretty incompetent.

  • muntz

    Lets be clear about something here. Good businessmen also pay their debts. Any hint of welching will immediately be met with lenders reluctance to lend. Trump’s businesses pay sky high rates of interest because no one trusts him. Companies that treat creditors well get much more favorable terms and rates.

    It is good business to treat lenders well. Period.

    • Hayden Arse

      This. Aside from the fiscal insanity, why does it seem like Trump is getting a pass for making business plans that involve screwing his creditors as an integral part of his plans? An army of attorneys can no doubt structure these deals to avoid them being outright fraud, but shouldn’t Trump be vilified for dirty dealing? He is promoting the kind of fraud that he has a long history of committing on a broader scale, and is not being called out for being a scoundrel, just for being an idiot. He is clearly both.

      • Guy_Incognito

        oops… double comment

      • muntz

        Im dying to see his tax returns. I’m betting his real estate biz is a failure – that he makes his money on licensing his name and on his TV shows.

        • efc

          You’re probably right. It seems like most of his property deals are actually licensing deals where the developer gets to put the Trump name on the property even though Trump has no actual involvement in the development.

          • BobBobNewhartNewhartSpecial

            It seems like most of his property deals are actually licensing deals where the developer gets to put the Trump name on the property even though Trump has no actual involvement in the development.

            When living in Asia, I remember seeing a lot of “Trump” buildings. A fair number where rather small developments, not the kind of thing you would expect an American developer to travel halfway across the world to build. I always wondered what was up with those.

      • JustRuss

        Yeah, funny how the Party of Personal Responsibility has chosen a candidate who brags about how he welches on his debts, and no one even says boo.

    • Guy_Incognito

      That may be true on a community banking level where relationships are more important, but it’s not true on the global level. Bonds can have all sorts of exotic covenants written in, and conversion, prepayment, or haircuts can all reduce the creditors’ return. Creditors weigh these risks when they decide to lend.

      Good =/= moral when it comes to business

      • muntz

        Sorry Guy – I’m actually in the global bond business. And relationships and character of the borrower are incredibly important there as well. I know Money Managers who refuse to buy any bonds from Trump. I know one manager who actually refuses to buy bonds underwritten by a particular investment bank. Some borrowers work very hard to pay their debts, others don’t. Trump basically took the money and then said “come get it.” He threatened to file for bankruptcy in order to get better terms – new covenants, etc. When the typical High Yield borrower was paying 8-10%, his bonds were yielding 17%. The market punished him.

        There’s some thing called the “5 Cs” of credit analysis. “Character” of the borrower is typically listed first.

        I agree that morality has little to do in the bond business. But self-preservation does. People don’t like to lend to scumbags.

        • Rob in CT

          Deadbeat Donald.

        • efgoldman

          Trump basically took the money and then said “come get it.” He threatened to file for bankruptcy in order to get better terms – new covenants, etc. When the typical High Yield borrower was paying 8-10%, his bonds were yielding 17%. The market punished him.

          I don’t suppose there’s any way to get this into quick, coherent bumper-sticker form. I’m sure HRC would love to use it, but I see Fred Voter just going “huh?”

          • JustRuss

            See Rob’s comment above. “Deadbeat Donald” is short, simple, and easy to understand. Back it up with ads featuring people who got “renegotiated” by Trump. I think Fred Voter would get it.

            • Pseudonym

              The problem is voters who inexplicably imagine Trump being on their side in these negotiations, screwing over Mexico and China. It needs to be made clear that Trump just sees the US government as another temporary business partner who provides him with more leverage and power.

    • BobBobNewhartNewhartSpecial

      Trump’s businesses pay sky high rates of interest because no one trusts him.

      Do you have a link to any articles about this? Sounds like something that should be in an attack ad or used in a debate, if true.

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  • tsam

    Why the fuck is Yglesias defending Trump? If he can make that excuse, he obviously has no clue how bond markets work either.

    • Rob in CT

      He’s not, actually.

      • BobBobNewhartNewhartSpecial

        Exactly. The impression given of the article in this post, and the actual article are not the same.

  • libarbarian

    When Trump (PBUH) is elected, the world’s safest asset will be Wall Futures.

  • Origami Isopod

    So this gem was in the Salon comments…

    Trump is actually much superior in macro-economics to Clinton or any of the other major candidates this year except Sanders, and possibly O’Malley.  He has accepted the correct position of Modern Money Theory (MMT) that a strong sovereign nation need not fear national debt, as it has unlimited ability to print money.  As chair of the Senate Budget Committee, Sanders appointed an MMT professor, Stephanie Kelton, as the committee’s chief economist.

    For an explanation and web tutorials on MMT, see http://neweconomicperspectives.org

    While I do not claim to be an expert on finance, economics, or monetary policy, I do know the difference between “actual wealth” and “pieces of paper that symbolize wealth.”

    • Hogan

      He has accepted the correct position of Modern Money Theory (MMT) that a strong sovereign nation need not fear national debt, as it has unlimited ability to print money.

      Which is, I note, the exact opposite of what Trump said.

    • Nubby

      I’m surprised someone other than myself has read the Modern Money Primer over on New Economic Perspectives.

      Here’s something that will blow your mind: The federal debt is private wealth. The federal government spends money into existence and taxes it out of existence. By statute, the Treasury has to issue debt in order to spend more than it taxes. If there were no federal debt, there would be (almost) no private dollar-denominated financial wealth the day after tax day.

      If you have a dollar in your pocket, that dollar is represented in the federal debt.

    • sharculese

      I used to think money worked like that. And by used to, I mean around age 15.

  • gary52

    Wait, wait, wait. I get the hating on Vox, I suppose, but that’s not what Yglesias is saying here. The article’s title is “Donald Trump just threatened to cause an unprecedented global financial crisis”–which is an interesting title to choose if you’re trying to reconcile Trump with some picture of a reasonable human being. Yglesias notes (and certainly overstates) how bankruptcy can be useful for some businesses, particularly capital-intensive ones like real estate. But the article is about how this is totally irrelevant to government debt, how little Trump understands about economics, and what a disaster this approach would be:

    “With his statement, Trump not only revealed a dangerous ignorance about the operation of the national monetary system and the global economic order, but also offered a brilliant case study in the profound risks of attempting to apply the logic of a private business enterprise to the task of running the United States of America.”

    “Applying this idea to the United States would destroy the economy” (sub-headline)

    “Trump doesn’t know what he’s talking about” (sub-headline)

    If there’s a defense mechanism at work here, I’m certainly missing it. He may not have a proper understanding of business bankruptcy, but he clearly sees the risks Trump poses for both national and international economies.

    We’re going to get far too may Trump apologists over the next few month. No need to imagine more.

    • Paul Campos

      My point wasn’t that Yglesias is defending Trump’s proposal, which obviously he isn’t, but rather that he’s making excuses for his ignorance — “he’s just a businessman after all” — that aren’t legitimate. Any halfway educated businessman knows that public debt is fundamentally different than private debt in regard to default options.

      • gary52

        Thanks, glad to hear it, and indeed that’s the point.

  • Robespierre

    Move along

  • Porkman

    The thing that terrifies me most about this election is how sure Jennifer Rubin is that Trump. is. going. to. lose.

    This woman has been wrong about every single thing for nearly 5 years.

    Her worldview is fundamentally flawed.

    I am deeply scared.

    • sharculese

      Jennifer Rubin is a single issue voter an that issue is dead Arabs. When the Republican candidate won’t even promise her that, of course she’s going to scream from the rooftops about how he’s going to lose. Don’t take it seriously.

  • “Trump is a businessman, and in terms of thinking like a businessman his idea makes sense.”

    I imagine when businessmen announce in advance that they have no intention of repaying the money they want to borrow, they soon drift into non-business careers, like Reality TV.

    UPDATE: I see that Muntz has already said the same thing, better.

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