Presidential candidate Donald Trump’s comments on the US debt and how it could be renegotiated for longer term notes is a businessman speaking.
All business debt can be open to discussion without creating a default — like so many have suggested of his comment.
“I would borrow, knowing that if the economy crashed, you could make a deal,” Trump said.
So the question is “Is sovereign debt the same as a business loan?”
That question can only be answered by the creditors. Suppose the global economy dives into a depression. Would creditors of short-term notes wish to go out on the longer end of the curve — say ten years — for a better rate? Or would they take $0.95 on the dollar to cash in the securities?
Trump is looking at the US debt as a company would. Most of the loan obligations of Uncle Sam are shorter term — with the average roughly six years. Why not — while rates are ultra low refinance that debt out to 22 years by rolling some notes over?
Corporations do this quite often, can a sovereign country do this?
Well from the looks at it, the short answer is why not. Since central banks across the globe are now active participants in the markets — from buying corporate bonds in Europe, buying stocks and bonds in Japan to manipulating currencies globally to cheapen it to spur trade.
A good minority of sovereign debt is already trading at negative interest rates as well, so why not look at paying off debt at less than par?
Everything about sovereign debt and how central banks operate is in question right now, why not a re-fi on some of the debt.
If Americans used their homes as an ATM in 2005-2007, then certainly Uncle Sam can use Yellowstone National Park as one now.
It doesn’t matter if it too ends bad, that’s a given under the present circumstances, it’s more about keeping all the balls in the air for the short term.
Yes Candidate Trump is comfortable with bankruptcy to get his way with creditors and one would hope that is not on the table. But given central banks actions leading up to this, I would say anything short of an outright default ought to be employed.