Donald Trump again walked up to the line of suggesting that the U.S. might use the trillions of dollars in debt the Treasury Department owes to China as some sort of leverage against that country in future negotiations, a position that has landed him in trouble in the past.
Trump was discussing the economic relationship between the U.S. and China when CNBC’s Becky Quick noted that Beijing is the largest single foreign holder of U.S. government debt.
“It’s all the more power we have over them,” Trump said. “Because of that, we have more power over them. You do understand that, don’t you Becky?” He continued, “We owe China $2 trillion, okay? Two trillion. It’s hard to believe, but that’s what it is. Think of it. They suck the blood out of us and we owe them money.”
Left unsaid was the fact that the only real “power” a debtor has over a creditor stems from the threat of non-payment. It is a strategy that Trump has employed multiple times in his business career -- refusing to pay his creditors until the terms of a loan are renegotiated and made more favorable. But it is not an option for the U.S. Treasury -- even a threat of non-payment of U.S. debts would create havoc in international financial markets, which treat Treasury obligations as the closest thing there is to a risk-free asset.
Quick stepped in to bail Trump out, declaring, “But we wouldn’t default on that debt. That’s U.S. sovereign debt.”
“No, you’re not going to default on that debt but we have a lot of power,” he said. “We have a lot of power.” The former reality television star left it unclear what the country’s status as a debtor to China gives it, and CNBC’s Squawk Box hosts didn’t pursue the matter.
In the same interview, Trump again attacked Federal Reserve Board Chair Janet Yellen, claiming that the politically independent Fed is operating as an arm of the Obama administration. Yellen, he said, ought to be “ashamed” for keeping interest rates at current ultra-low levels for so long. He also predicted a stock market disaster once rates start to rise.
“Any increase at all will be a very, very small increase because they want to keep the market up so Obama goes out and let the new guy ... raise interest rates ... and watch what happens in the stock market.”
Trump’s assessment of the Fed and its role in the economy was immediately disputed. Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said in a subsequent interview that Trump’s analysis of the Fed’s decision making is a fiction.
“Politics simply does not come up,” he said. “We look at the economic data and ... everyone around the table is committed to achieving our dual mandate.” The Fed is tasked by Congress with controlling inflation and keeping unemployment low.
Billionaire Mark Cuban was apparently watching the interview, and took to Twitter to blast Trump for not understanding the way the central bank works.
“Trump's comment on the Fed is exactly why the market will tank if he is elected,” he wrote. “Ask him if he understands how the Fed works @cnbc.” He added later, “in a room full of economists they all disagree. That's the Fed. But it's not corrupt. He doesn't know what the Fed does.”