Donald Trump’s interlocutors on CNBC amost fell out of their socks Thursday when Andrew Sorkin asked about the federal government’s debts — namely whether he believes America needs to pay “a hundred cents on the dollar or do you think that there’s actually ways that we can renegotiate that debt?” Replied The Donald (quoting from the Washington Post): “I have borrowed knowing that you can pay back with discounts.”
Mr. Trump, as the Post put it, “acknowledged that the situation he would face as president would be different than that of a commercial real estate developer.” We’re “in a different situation with the country,” Mr. Trump allowed. “Now you are talking about, you know, you’re talking about something that’s very, very fragile, and it has to be handled very, very carefully.” It took CNBC’s Becky Quick to press the point.
“But let’s be clear,” she said. “I mean, you’re not talking about renegotiating sovereign bonds that the U.S. has already issued?” Mr. Trump replied ambiguously. “No. I don’t want to renegotiate the bonds,” he said. “But I think you can do discounting, I think, you know, depending on where interest rates are, I think you can buy back — you can — I’m not talking about with a renegotiation, but you can buy back at discounts.”
The right answer is that America has already defaulted on its debts — and it wasn’t on Donald Trump’s watch. It was when the Congress, which owns the power to borrow money on the credit of the United States, allowed the dollar to collapse to less than a 1,250th of an ounce of gold. It was at a 256th of an ounce of gold when President George W. Bush was sworn in, and an 853rd of an ounce of gold when President Obama acceded to the White House.
So if we started paying back today debts incurred during the Bush administration we’d be paying back with scrip valued at less than when the money was lent to us. Nobody wants to call that a default. Then again, too, huge sectors of the economy, including the administration, have a vested interest in running down the value of the federal government’s obligations. The Democrats and the Fed are plumping for 2% inflation.
The logic for Mr. Trump making clear that America has already defaulted is not only to establish the record. It’s also to fix the responsibility on the Congress, which is the branch to which the Constitution grants all of the monetary powers of the United States. It has the sole power to borrow on the credit of the United States and also the sole power to coin money and regulate the value thereof and of foreign coin.
For Mr. Trump to mark this would also signal that he’s going to be watching for the Fed Oversight Reform and Modernization Act, which passed the House last year and is currently before the Senate. That measure would set the stage for the Congress to rein in the Fed and focus on the need to pare its programs and fund them not by churning out fiat money but with real revenues. It will highlight the need for growth and jobs.
All that would dovetail nicely with Mr. Trump’s declared principles. It would also set the stage for a constructive start with the Speaker, Paul Ryan, who, if Mr. Trump wins the election and GOP holds the House, would be the new president’s most important partner in Washington. To avoid the kind of default we’ve seen, it’s not going to be enough to come up with what the economists call a stable dollar, though stability is good.
The question is against what should the dollar should be stabilized. Against the euro or the yuan or the yen, that would mean zilch. They’re all fiat currencies, too. To avoid further default, the dollar would need to be stabilized in law against one of the classical species — gold ideally. In an interview on WTAE in Pittsburgh, Mr. Trump declared, at least in principle, for honest money. “We used to have a very solid country because it was based on a gold standard,” he said, “and we do not have that anymore.”