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Donald Trump Attempts To Clarify Comments On Federal Debt Payments


Donald Trump is trying to clarify a remark that caused some angst in financial circles. He first seemed to suggest that the federal government could renegotiate its debt. He has since walked that back. NPR's Scott Horsley reports.

SCOTT HORSLEY, BYLINE: This is a story about Donald Trump and haircuts, not Trump's own famous do. In this case, haircut is a financial term for the sacrifice a lender agrees to make when a borrower can't repay everything he owes. Trump was on the phone last week with CNBC's "Squawk Box" program when co-host Andrew Ross Sorkin posed a provocative question - should the U.S. government demand a haircut from the lenders holding $19 trillion dollars in federal debt?


ANDREW ROSS SORKIN: (As himself) Do you believe that we - in terms of the United States - need to pay a hundred cents on the dollar or do you think there's actually ways that we could renegotiate that debt?

DONALD TRUMP: (As himself) Yeah, I think - look, I've borrowed knowing that you can pay back with discounts, and I've done very well with that.

HORSLEY: Trump acknowledged that he built his casino empire with a lot of borrowed money, and he cheerfully referred to himself as the king of debt.


TRUMP: Now, of course, I was swashbuckling, and it did well for me, and it was good for me and all that. And, you know, debt was sort of always interesting to me. Now we're in a different situation with the country, but I would borrow knowing that if the economy crashed, you could make a deal.

HORSLEY: Law professor Lynn LoPucki of UCLA says Trump repeatedly negotiated haircuts on his own company's debts, sometimes with the help of the U.S. bankruptcy code.

LYNN LOPUCKI: The Trump casinos have renegotiated debt through bankruptcy four times. In a negotiation, both sides have to agree, so what undoubtedly happened was to the benefit of both the creditors and the Trump casinos.

HORSLEY: LoPucki says when a borrower goes bankrupt, lenders have to ask themselves, are we better off negotiating and perhaps settling for a fraction of what we're owed or putting a borrower out of business in which case we might get nothing at all?

LOPUCKI: The Trump casinos were simply worth more money with Donald Trump's name on them than without Donald Trump's name on them, and that gave him a lot of leverage.

HORSLEY: So could the U.S. government use the same bare-knuckle negotiating tactics with the people to whom it owes money? Most financial experts say, no way.

DOUGLAS HOLTZ-EAKIN: Anything less than full and timely repayment on U.S. Treasury is unthinkable.

HORSLEY: Douglas Holtz-Eakin is former director of the Congressional Budget Office who now leads the Conservative American Action Forum. He warns if the U.S. government ever pays less than it owes, it'll be slapped with higher borrowing costs in the future. What's more undermining, treasury bills' rock-solid reputation would send shockwaves through the global economy.

Trump himself quickly backed away from the idea. He told CNBC last weekend and CNN today he's not suggesting a debt default, but rather a kind of refinancing.


TRUMP: In other words, if interest rates go up and we can buy bonds back at a discount - if we are liquid enough as a country, we should do that.

HORSLEY: It's not clear how that would work, though, since the cash-strapped government would have to borrow more money at rising interest rates to buy back its old debt. Holtz-Eakin was left scratching his head.

HOLTZ-EAKIN: This has been an interesting but not particularly illuminating couple of days. The proposals have been essentially all over the map, and they leave me at least wondering what he actually is proposing.

HORSLEY: Holtz-Eakin says Trump would be better off focusing on what's behind the government's debt, namely the imbalance between government spending and revenue. So far Trump's offered a tax plan that would reduce revenue by an estimated $9.5 trillion over the next decade. And he's ruled out spending cuts to Medicare and Social Security. Scott Horsley, NPR News, Washington. Transcript provided by NPR, Copyright NPR.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.