Donald Trump Is Coherent on Monetary Policy, but Not on Debt
She’s a low-interest-rate person, she’s always been a low-interest-rate person,” he said. “And I must be honest, I am a low-interest-rate person. If we raise interest rates, and if the dollar starts getting too strong, we’re going to have some very major problems.”
That gets the economics of the current American monetary policy dilemma pretty much right. As the Fed moved toward interest rate increases last year, when other global central banks were trying to ease policy, it created steep upward pressure on the dollar. That in turn hammered American exporters, undermining growth here.
It also caused strains across the global economy. Because the dollar is the global reserve currency and because debts around the world are denominated in the currency, a stronger dollar meant tighter money in countries from China to Brazil.
.. “While there are certain benefits, it sounds better to have a strong dollar than it actually is,” he said.
.. But Mr. Trump also suggested something that would represent a radical shift in United States policy if we take him seriously. “I’ve borrowed knowing that you can pay back with discounts,” he said. He added, “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.”
.. But typically the kinds of discounts on bond prices he is talking about occur when a country or company is at high risk of defaulting on its obligations. And to even threaten that would be a rejection of a principle that dates to Alexander Hamilton and the founding of the republic — that the United States’ promise to make good on its obligations is ironclad. Threatening to repudiate American government debts could also arguably violate a provision of the 14th amendment of the Constitution.