Paul Krugman in the New York Times:
The Trump solution would, among other things, deprive the world economy of its most crucial safe asset, U.S. debt, at a time when safe assets are already in short supply.
Of course, we can be sure that Mr. Trump knows none of this, and nobody in his entourage is likely to tell him. But before we simply ridicule him — or, actually, at the same time that we’re ridiculing him — let’s ask where his bad ideas really come from.
First of all, Mr. Trump obviously believes that America could easily find itself facing a debt crisis. But why? After all, investors, who are willing to lend to America at incredibly low interest rates, are evidently not worried by our debt. And there’s good reason for their calmness: federal interest payments are only 1.3 percent of G.D.P., or 6 percent of total outlays.
These numbers mean both that the burden of the debt is fairly small and that even complete repudiation of that debt would have only a minor impact on the government’s cash flow.
So why is Mr. Trump even talking about this subject? Well, one possible answer is that lots of supposedly serious people have been hyping the alleged threat posed by federal debt for years. For example, Paul Ryan, the speaker of the House, has warned repeatedly about a “looming debt crisis.”Indeed, until not long ago the whole Beltway elite seemed to be in the grip of BowlesSimpsonism, with its assertion that debt was the greatest threat facing the nation.
A lot of this debt hysteria was really about trying to bully us into cutting Social Security and Medicare, which is why so many self-proclaimed fiscal hawks were also eager to cut taxes on the rich. But Mr. Trump apparently wasn’t in on that particular con, and takes the phony debt scare seriously. Sad!
Still, even if he misunderstands the fiscal situation, how can he imagine that it would be O.K. for America to default? One answer is that he’s extrapolating from his own business career, in which he has done very well by running up debts, then walking away from them.
But it’s also true that much of the Republican Party shares his insouciance about default. Remember, the party’s congressional wing deliberately set about extracting concessions from President Obama, using the threat of gratuitous default via a refusal to raise the debt ceiling.
And quite a few Republican lawmakers defended that strategy of extortion by arguing that default wouldn’t be that bad, that even with its access to funds cut off the U.S. government could “prioritize” payments, and that the financial disruption would be no big deal.
Given that history, it’s not too hard to understand why candidate Trump thinks not paying debts in full makes sense.
The important thing to realize, then, is that when Mr. Trump talks nonsense, he’s usually just offering a bombastic version of a position that’s widespread in his party. In fact, it’s remarkable how many ridiculous Trumpisms were previously espoused by Mitt Romney in 2012, from his claim that the true unemployment rate vastly exceeds official figures to his claim that he can bring prosperity by starting a trade war with China.
None of this should be taken as an excuse for Mr. Trump. He really is frighteningly uninformed; worse, he doesn’t appear to know what he doesn’t know. The point, instead, is that his blithe lack of knowledge largely follows from the know-nothing attitudes of the party he now leads.
Trump did not appear out of nowhere. The republican party reaps as it sows.