Opinion
Donald Trump, Treasury Debt and the Dollar
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First, the United States benefits tremendously from its ability to issue Treasury securities at low cost regardless of financial conditions. Second, candidate Trump’s statements risk undermining investor confidence in U.S. debt.
By Kim Schoenholtz and Stephen Cecchetti
The time has come to start weighing in on presidential candidate Donald Trump’s statements on economic policy. In this post we examine his comments about U.S. government debt. After saying that he is the “king of debt“ and that he “loves debt,” Mr. Trump recently went on suggest that if interest rates were to rise, he would seek to “make a deal“ on U.S. Treasury debt. In his words, “I could see long-term renegotiations where we borrow long term at very low rates.” He also called this action: “refinance debt with longer term.”
Mr. Trump appears to assume that his sensibilities as real estate mogul and dealmaker can be directly applied to government debt management policy. They cannot. Treasury securities bear absolutely no resemblance to the debt issued byTrump Entertainment Resorts, which went bankrupt in 1991, 2004, 2009, and 2014.
Treasury debt is the world’s safest, most liquid and most widely held financial asset. As a result, it serves as the benchmark for the entire universe of fixed-income securities, both domestically and internationally. Treasuries have achieved that enviable status because investors have faith that the U.S. government—unlike default-prone corporations and some sovereigns—will make its payments on time in good times and bad; and that it will never seek to renegotiate, restructure or manipulate the value of its debt through special arrangements with a coterie of investors, however great the short-run temptation may be. By limiting its resort to such options—even in difficult times—the Treasury has established U.S. government debt as the bedrock of the global financial system. In the arena of sovereign debt management, as in many other policy arenas, rules trump discretion.
Read full article as published by The Huffington Post.
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Kim Schoenholtz is Professor of Management Practice in the Department of Economics and Director of the Center for Global Economy and Business.
Mr. Trump appears to assume that his sensibilities as real estate mogul and dealmaker can be directly applied to government debt management policy. They cannot. Treasury securities bear absolutely no resemblance to the debt issued byTrump Entertainment Resorts, which went bankrupt in 1991, 2004, 2009, and 2014.
Treasury debt is the world’s safest, most liquid and most widely held financial asset. As a result, it serves as the benchmark for the entire universe of fixed-income securities, both domestically and internationally. Treasuries have achieved that enviable status because investors have faith that the U.S. government—unlike default-prone corporations and some sovereigns—will make its payments on time in good times and bad; and that it will never seek to renegotiate, restructure or manipulate the value of its debt through special arrangements with a coterie of investors, however great the short-run temptation may be. By limiting its resort to such options—even in difficult times—the Treasury has established U.S. government debt as the bedrock of the global financial system. In the arena of sovereign debt management, as in many other policy arenas, rules trump discretion.
Read full article as published by The Huffington Post.
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Kim Schoenholtz is Professor of Management Practice in the Department of Economics and Director of the Center for Global Economy and Business.