U.S. Markets

Trump dips toe into delicate U.S. debt discussion

NEW YORK (Reuters) - Would Donald Trump really consider not paying portions of the U.S. debt? The prospect riled economists on Friday as stories in the New York Times and the conservative website The Blaze cast fresh scrutiny on comments Trump made a day earlier.

Republican U.S. presidential candidate Donald Trump speaks to supporters in Charleston, West Virginia, U.S. May 5, 2016. REUTERS/Chris Tilley

Responding to a question about the national debt, the likely Republican presidential nominee said in an interview on CNBC on Thursday he would “borrow knowing that if the economy crashed you could make a deal.”

When asked if that meant he had taken a page from his own playbook as a businessman and try to get U.S. creditors to accept less than the full value of the bonds they hold, he said “No,” but added: “I could see long-term renegotiations where we borrow long-term at very low rates.”

The reaction to his words on Friday offered the first-time political candidate a taste of how delicate the prospect of discussing economic and fiscal policy can be. It also highlighted a danger for Trump as his campaign moves from a crowded, personality-fueled contest for the Republican nomination to a general election competition where the media and members of the public expect more policy details from the candidates.

“Such remarks by a major presidential candidate have no modern precedent,” the New York Times wrote in a story saying Trump’s plan implied he would “negotiate a partial repayment” of U.S. debt.

“It’s beyond ludicrous and irresponsible unless you’re, say, an emerging market country,” wrote the U.S. debt analyst David Ader, the head of rates strategy at CRT Capital, in a note to clients early Friday morning.

A senior campaign adviser said Trump had not meant to suggest he would demur on any U.S. debt payments.

“Mr. Trump was clear in saying that he was not going to renegotiate U.S. debt, despite being asked multiple times, and that he would not default on U.S. debt, despite being asked multiple times,” said the adviser, who did not want to be identified because he was not authorized to speak publicly.

“All he said is that he believes that long term low interest Treasuries would be a better deal for the U.S. taxpayer.”

Still, four Trump companies have been through bankruptcies in which his creditors were forced to accept far less than the more than $4 billion he owed them, and in the CNBC interview he spoke of loving to “play with” debt.

“The United States is nowhere near debt distress,” said Charles Seville, an analyst at Fitch Ratings Inc. who focuses on government debt.

Seville said if the U.S. government were to choose not to repay creditors, it would “undermine faith in the United States’s ability to borrow at low rates which is the underpinning of its high credit rating,” adding, “there’s no quick way of reducing the debt burden. It’s something that would be a product of fiscal consolidation or faster growth.”

Moreover, given that U.S. Treasuries are viewed as the safest-of-safe securities globally, underpinning the dollar’s status as the world’s preferred reserve currency, any damage to that reputation would likely unleash far-flung ructions in financial markets worldwide.

The U.S. government regularly issues Treasury bills, notes and bonds maturing in a range of between four weeks and 30 years. Currently, interest rates on U.S. government debt are near historically low levels, meaning the government is able to borrow cheaply. The Treasury Department has been gradually moving more of its obligations into longer-term debt to take advantage of the low rates.

Reporting By Emily Flitter; Editing by Dan Burns and Chizu Nomiyama