Can Donald Trump Revolve on Debt Before its Too Late?
Exactly one month from today, the federal debt limit will be reinstated. I’ve written about why I think the debt ceiling limit is destructive, duplicative, and dumb. It’s looming reinstatement got me to thinking about the incoming administration and the various positions Donald Trump has taken when it comes to debt and deficits over the years.
That Was Then
It’s not uncommon for political figures to change their views on major issues, and I would argue that it’s a sign of strength when someone abandons a flawed perspective for a more informed one. The uncharitable commentator might refer to it as “flip-flopping” but we sometimes hear it described as “evolving” on an issue.
You could argue we saw that with Donald Trump, who often referred to himself as the “King of Debt”, back in 2016. As The New York Times reported, Trump once “suggested that he might reduce the national debt by persuading creditors to accept something less than full payment.” While it was never clear exactly what he had in mind, it led to howls from critics and something of an uproar in financial circles.
A few days later, following a conversation between one of Trump’s senior economic advisors and a leading MMT economist, ”the King of Debt” was all over television, cleaning up his remarks with everyone from Chris Cuomo to Maria Bartiromo:
People said I want to go and buy debt and default on debt, and I mean, these people are crazy. This is the United States government. First of all, you never have to default because you print the money, I hate to tell you, OK?
To be fair, Trump’s team could have gotten the same briefing from Alan Greenspan, Warren Buffett, or any number of other figures who understand what makes the U.S. different from, say, Greece. What matters is that he didn’t just try to clean up his earlier remarks by articulating exactly what he meant by “renegotiating” the debt. He shifted gears completely, drawing attention to the currency-issuing power of the federal government and explaining why that power means that no one should be worried about the US defaulting on its debt.
As president, Trump never prioritized America’s so-called fiscal imbalances. He mentioned the word “deficit” only twice in any of his State of the Union speeches, once when he referred to our “infrastructure deficit” and once when he was talking about the “trade deficit.” No one in the administration seemed to care either. In 2019, ABC News asked Trump’s Acting Chief of Staff, Mick Mulvaney, whether the president was going to comment on the government’s ballooning deficits. Mulvaney simply replied, “nobody cares.”
When the pandemic struck and Congress was preparing to pass a $2.2 trillion COVID rescue package together with a $4 trillion budget, Trump explained—more clearly than any president I can think of—what we can financially afford as a nation. While there was no talk of real resource constraints, Trump was clearly evolving toward an MMT-adjacent viewpoint. He said:
The beautiful thing about our country is…It’s $6.2 trillion, and we can handle that easily because of who we are. What we are. It’s our money…It’s our currency. We can handle it…We’ll do whatever we have to do.”
This is Now
I have no idea what the president-elect actually believes today, but he appears to be devolving on some of these issues in a big way. Is he creating the Department of Government Efficiency (DOGE) because he’s decided that the federal debt is unsustainable after all? Does he really want to see Elon Musk and Vivek Ramaswamy cut $2 trillion or more from the federal budget? Does he seriously think, as he suggested to Maria Bartiromo, that we can pay off the national debt by handing bondholders “a little crypto.”
The gross federal debt recently hit $36 trillion, a level that Elon Musk referred to as “terrifying.” As readers of this newsletter, you—hopefully—know that the so-called national debt is basically a scorecard that keeps track of how many dollars the federal government has added to our savings accounts over the centuries. Today, the public holds $28.7 trillion in government debt, enough to buy about one-year of U.S. GDP.
I wrote a chapter about what we get wrong when we tremble in fear over the size of the national debt. You can read it here. Maybe someone can help Musk evolve and, if necessary, help the president-elect revolve before it’s too late.
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I'm not holding my breath unfortunately. They seem determined to implement dangerous austerity measures for the working poor while doing their usual trickle-down nonsense for the very rich. Bottom line, its flat out astounding to see how ignorant people are when it comes to understanding the monetary system.
For me, perhaps the most surprising insight offered by MMT is the simple but profound proposition that U.S dollars have to come from somewhere! As I understand it, dollars are created in 2 ways: 1) the federal gov't deficit spends them into existence each year with its annual budget and 2) banks create dollars when they issue loans (which is why serious bank regulation is so important).
Question is, how do we acquire dollars that we own free and clear in our savings accounts? In can't be "bank money" because all bank loans exist simultaneously as assets and liabilities that sum to zero. And banks like their loans to be repaid in full, plus interest. So that leaves the federal gov't's deficit spending as the only logical source of our saved dollars. Unlike banks, the gov't really doesn't care if it claws back in taxes less than the amount it spends each year.
None of us has a "Benjamin Tree" growing in our backyard. So the next time you hear someone complain about the so-called "national debt" (it's really more accurate to call it a "float in perpetuity"), remind them that they have the "national debt" to thank for their financial wealth.