There have been few signs that the three remaining presidential candidates seeking to capture the nation’s commanding heights are willing to confront the subject of America’s public debt, which has grown to over $19 trillion, more than the gross domestic product. It is estimated that by 2023, entitlement payments, military spending and interest on the debt will consume 100 percent of tax revenues.
All three have behaved like they know less than zilch about the subject. Assuming the final match-up is Hillary Clinton versus Donald Trump, you get to choose from two disliked candidates who give egomaniacs a bad name. All in all, this match-up is not a battle of good against evil. It is a choice between bad and less bad.
When it comes to the debt, all three remaining candidates have behaved like Scarlett O’Hara in “Gone with the Wind” who reacted to every adverse circumstance with the statement: “I can’t think about that right now. If l do, I’ll go crazy. I’ll think about that tomorrow.”
Donald Trump, the presumptive Republican nominee, did wade into the subject several weeks ago. There are a thousand things you can say about Trump, some of which you can even print in newspapers. But we have come to know one thing above all else: He’s going to say what is on his mind.
Several weeks ago, Trump made the stunning suggestion that maybe Uncle Sam can save a few shekels by renegotiating the public debt and paying back holders of United States bonds less than 100 cents on the dollar. Such action would be tantamount to a default. His proposal overshadows everything he has said about the economy. It was greeted as lunacy and created quite a kerfuffle in global financial markets, which found his suggestion as enticing as exploratory surgery.
Despite concerns about the United States putting its fiscal house in order, Treasury securities are seen as among the world’s safest, if not the safest, debt because they are backed by the full faith and credit of the United States government. No other investment carries as strong a guarantee that interest and principle will be paid in full and on time.
Responding to the tsunami of ridicule that greeted this absurd suggestion, Trump walked back his comments the following day, saying he never meant to suggest he wanted the United States to default on its debt.
Some perspective is in order here regarding who owns our nation’s debt. American stakeholders own nearly $13 trillion of the more than $19 trillion. More than $5 trillion is held by trust funds such as Social Security and the Highway Trust Fund; $5.1 trillion is held by individuals, pension funds and state and local governments; and the balance of$2.5 trillion is held by the Federal Reserve.
Of the remaining $6.2 trillion, China holds $1.3 trillion, followed by Japan with $1.1 trillion, and the $3.8 trillion that’s left is held by other countries such as Saudi Arabia, with $117 billion.
Foreign governments don’t own us; we owe us.
While nobody knows for certain what would happen, failing to pay creditors anything less than the full amount owed undermines the very notion of the full faith and credit guarantee of United States government sovereign debt. Americans whose savings and retirement accounts include treasury bonds would be hurt. International investors would panic and raise future borrowing costs for the United States government by demanding higher interest rates since the debt would be seen as a less safe investment. This would prompt interest rates around the globe, which are often tied to U.S. treasuries, to spike. After all, U.S. treasuries are the pillar of the global financial system.
Sadly, it’s time to toss in the towel, the tablecloth and the rest of the accoutrements and admit it: We got these candidates to this point; they are what the American public deserves.
Originally published: May 28, 2016