Donald Trump is currently back-peddling from his latest gaffe, after he claimed he could wipe out US sovereign debt within eight years
The US owe some $19 trillion dollars, and this has widely been regarded as one of the safest assets in finance for investors for a long time. However, a Trump presidency could endanger this warn finance insiders, after the naive Republican candidate suggested that the US could 'negotiate with creditors', to reduce their debt. - For example, a Trump administration might offer to repay $80 of a $100 bond to the bond's holder.I've borrowed knowing that you can pay back with discounts," he said. "I would borrow knowing that if the economy crashed, you could make a deal."
The reality of investors' receiving less than they were promised by the most powerful government in the world would almost certainly see a dramatic increase on interest rates in the US, and would very likely set off a global recession.
In a later interview on CNN's "New Day," Trump attempted to clarify his plans for the national debt, saying the US would never default on its obligations because it printed money:
“If interest rates go up, and we can buy bonds back at a discount, if we are liquid enough as a country, we should do that. In other words, we can buy back debt at a discount. People said I wanted to go and buy debt and default on debt, 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.“
Despite printing extra money being employed in some circumstances -such as quantitative easing, doing so to relieve national debt could be disastrous. It would most likely result in a large amount of inflation, causing prices to rise dramatically; ultimately wreaking havoc on the economy. As such Trumps observation about 'printing money' is strictly true, but is of such little value, and therefore extremely unlikely – but then again how many people said that of Trump himself before he became the Republican's best chance. One things for sure; the soap opera that is the US election will continue at apace until it reaches a conclusion on November 8th.