CNN Dissects Trump's “Nerve-Wracking” Proposal To Undermine “Full Faith And Credit” Of The United States
Cristina Alesci: Trump's “Unprecedented Move” Would “Potentially Make The Economy Weaker”
From the May 9 edition of CNN's Legal View with Ashleigh Banfield:
ASHLEIGH BANFIELD (HOST): I want to get some insight now from CNNMoney correspondent Cristina Alesci. This can be somewhat confusing if you don't have a degree in economics. But safe to say, if you're talking about this kind of thing like printing money, default's not a problem. Maybe in the business world, that's right. But in the world of governments, the United States government is considered some of the most pristine product in the world. What happens when that gets questioned?
CRISTINA ALESCI: Many experts, both on a sovereign debt side, which is what we're talking about when countries issue debt versus companies issue debt, experts both on the country debt and the company debt do not understand what Donald Trump is talking about today. Because as you said, when a company issues debt, what you can do is a bondholder -- or the people that hold that debt -- could go and renegotiate it because it's an agreement between two private parties. What we are talking about is essentially trying to renegotiate U.S. debt. That's what Donald Trump is talking about. That is a very complex and unprecedented move, and it basically blurs the line between corporate and country sovereign debt. It's not the same. It's a horse of a different color.
BANFIELD: And can I also ask you, when Donald Trump talks about, we'll just go back and buy back all that debt. He often says, “the Chinese own us,” and all the rest. If you want to go and just buy back that debt, they don't have to sell it. And where are you going to get the money to buy back all that debt?
ALESCI: Well, essentially, you’d have to reissue more debt with the very same people who lent you the debt in the first place. So, you point out an excellent inconsistency, but here's the thing. Donald Trump is talking about being tough on our trading partners, that he's going to renegotiate these trade deals and at the same time, you're going to ask these trading partners to take a haircut on U.S. debt? Why would they do that? There's no reason they would do it. And look, the other point here, which is up on the screen, number two is the negative reaction in the market. If the U.S. says, we can't -- we need to pay less than what we owe, which is essentially what Donald Trump is suggesting, the markets would react very negatively. Let's not forget what happened when the S&P, a major credit rating agency, downgraded the U.S. debt for the first time, the markets went crazy. OK? Credit dried up. Now, that was a short-term reaction because people came to their senses and realized wait a second, the U.S. is going to stand behind its debt, it's not going to try and finagle some deal. So that's why the markets came back, but there would be a very negative reaction, not just on Main Street, but in the C-Suite. These are CEOs who are making decisions on how many people to hire, and they're going to be very nervous once credit dries up, once you have any panic in the markets, and that's going to potentially make the economy weaker, not stronger.
BANFIELD: It's a little nerve-wracking to think that the full faith of credit of the United States government, and our Treasury, is up for negotiation. That makes, I think, a lot of people get jittery and those jitters, they certainly dribble downhill. Real quickly.
ALESCI: Yeah, Ashleigh, this is a real abrupt change from what he said previously about how he would address the debt. Remember, he said he would address the debt in eight years. It would be not a problem because he would eliminate waste and fraud.
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