Famous quant risk manager on Trump dealing with the debt

[kona]

https://www.quora.com/When-will-Trum...aron-Brown-165

When will Trump work on lowering the U.S. Public (national) debt?

Most politicians lie about what they will do, but usually adhere to at least minimal standards of truth about historical facts. Trump’s claims about the past are far less reliable than the norm, which causes some people to mistakenly assume he lies about his future actions. By the standards of politics, Trump is an honest man about his intentions.

Trump’s statements and history make clear that he takes a financial professional’s view of debt. Debt is not a moral obligation of the borrower, it’s a contract between a borrower and a lender, both of whom assume risk. It’s no different from a stock or any other financial security. If the borrower becomes unwilling or unable to make promised payments, there’s a renegotiation.

Most politicians talk as if US debt is a sacrosanct collective obligation, and act as if the debt never needs to be repaid. Neither view is true. There is no plausible scenario in which the US repays its debt. Congress cannot even agree to raise taxes to pay for current spending, much less to raise them so much higher debt can be repaid, not to mention meet the unfunded and contingent liabilities that are much larger than the official debt.

So what happens? The mainstream view is that things continue like this forever, with the debt steadily growing, but the economy growing enough that things stay manageable. There will be lots of little promises broken—social security and Medicare cuts, inflation, expropriations, campaign promises of new spending and “no new taxes” forgotten—but no big one that causes fundamental realignment. While nothing is forever, that could be the state for a very long time, especially if technology cuts health care expenses and drives good economic growth and voters continue to elect the same types of people.

There are two other plausible scenarios. First is that Congress becomes unwilling to pay the interest on the debt, probably because rates have gone up and continuing to borrow to pay the interest makes the deficit unpalatable even to the most ardent tax-and-spenders. Second is that lenders become unwilling to buy enough new US debt to cover maturing debt, interest and deficits, probably as a result of some economic or political disruption, but perhaps just a sudden shift in market sentiment like a bank run. History teaches that these things happen very suddenly when they happen, so the fact that interest rates are still low today and markets seem calm doesn’t mean they won’t happen tomorrow.

The US has several options in these scenarios. It could do nothing, moving lender’s funds from treasury security accounts to cash accounts, causing a gigantic spike in money supply, probably leading to inflation or hyperinflation. That would cause more lender distress and retaliation than an explicit default, and a lot of other economic damage as well. The US could refuse to pay treasuries, which would be almost as bad. Hopefully the US would negotiate with lenders to restructure the debt, accepting fiscal and monetary discipline in exchange for lengthened maturities and reduced coupons of existing debt.

Unlike other politicians, Trump has plenty of experience with that last option, and has said clearly that he regards it as the likely and most desirable path. He hasn’t said he would force it, and he has no reason to do that. But if either Congress or lenders grow dissatisfied with the status quo, Trump’s intentions are to reduce the debt through hardball negotiations. He has only limited powers in that endeavor, but given that it’s clearly the right solution and he’s good at doing it, I think it’s the likely outcome.

[DamianTV]

I still say Stiff The Fed.