Donald Trump is floating an insane idea that would tank the American economy

Photo: CNBC/screengrab.

Donald Trump says he would approach financing the U.S. government like it’s one of his failing casinos.

He said on CNBC Thursday that, as president, he’d find ways to renegotiate the public debt and pay less than 100 cents on the dollar if the economy went bad.

“I’ve borrowed knowing that you can pay back with discounts,” he said. “I would borrow knowing that if the economy crashed, you could make a deal.”

Donald trump cnbcCNBC/screengrabDonald Trump.

Some corporate finance deals really do work like this: You issue risky debt, and the lenders know you might not be able to pay them back in full if something really bad happens. But that kind of debt bears a high interest rate, because the lenders know you might not be able to pay them back in full if something really bad happens.

U.S. Treasury bonds have very low interest rates because investors are extremely confident they will be paid in full, even in poor economic conditions. Trump, by openly saying he would keep partial payment on the table as an option, could spark a crisis in the Treasury markets if he became president. Investors would cease to see Treasuries as a safe asset and demand higher interest rates in exchange for risk.

This, of course, is a terrible idea and a good reason for Republicans to hesitate in coalescing around Trump. Do they really want manufactured economic crises to be part of the Republican brand?

Well, judging by their behaviour during the 2013 debt ceiling crisis, some of them do. This particular desperate measure floated by Trump is novel, but he is not the first Republican to advance the idea that usual concerns about prudence and risk can be thrown out the window because the country is already a smouldering garbage fire.

It’s been common for years for some Republicans to talk about America’s debts as un-payable. Starting from that incorrect premise, Trump is only adding the insight that if you’re going to default anyway, you might as well borrow what you can while you still have access to the credit markets.

But saner Republicans, the ones who knew all along that America faces a debt problem but not a debt crisis and that talk of non-payment is irresponsible, should be horrified by what Trump says when he puts on his CFO hat.

NOW WATCH: Here’s the controversial Larry Wilmore joke that has everyone talking

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.