Trump, Debt, and Money Printing

During a lengthy interview on CNBC the week before last, Donald Trump, fresh from becoming the presumptive Republican nominee, came as close as any major presidential contender ever has to saying that America is not capable of repaying her debts in full, and that our path to economic recovery might involve some pain for our creditors. This moment of candor earned Trump almost as much condemnation as his earlier suggestions to ban Muslims from entering the United States.

To many, the idea that U.S. debt obligations involved even the slightest risks to investors was both the height of financial naiveté and the epitome of political recklessness. The pressure was so great in fact that The Donald, who has consistently refused to engage in even the most sensible strategic retreats, appeared on CNN last Monday to “clarify” his earlier remarks. However, he ignited another firestorm when he inadvertently let slip another unspoken truth, namely, that the United States can always print however much money she needs to “repay” her debt. Apparently the only acceptable position to hold on this issue is to completely deny reality.But even with these inconsistent musings, Trump acknowledged a hint of realism that other politicians can’t. He said that the U.S. economy remains extremely dependent on ultra-low interest rates, and that even a 1% increase in rates could make our budget position untenable. But Trump’s policy ideas on expanding the military and shoring up social security, taking better care of our vets, building walls, rounding up and deporting illegals, and replacing Obamacare with some as yet undefined program, will require even more borrowing. To square that budgetary circle, Trump acknowledged that we have to push down the value of the dollar.

In the CNBC interview, he said that a strong dollar sounds good “on paper” but that a weak currency offers much greater benefits. In fact, he credits weak currencies as the primary weapon used by China to engineer its own success. He wants to do the same for America. Of course the Achilles heel of such a plan is that a significantly weaker dollar is bound to usher in a wave of inflation that could rival, or even surpass, the 1970s. If Trump is willing to let the dollar fall steeply, the poor especially could suffer as purchasing power evaporates and poverty rates increase.

But based on the opinions of economists, that is exactly the policy path for which we should prepare. Inflation and a weak dollar are the only solutions they can envision to “solve” our problems, and that is exactly what we will get. So nice try Donald, but from now on you may as well just keep talking about the Wall.

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