Imagine President Trump’s finger on the economic button

Many have questioned whether Donald Trump has the temperament to have his finger on the button of our nuclear weapons. But there’s also a button for mutually assured economic destruction, and the first global crisis of a would-be Trump administration may be economic, not military. This crisis begins just 55 days after inauguration.

On March 16, 2017, the U.S. will reach the federal debt limit. At that point, Congress must quickly pass — and the president must sign — legislation to raise the limit, or else the U.S. will default. A determined White House could forestall default by directing Treasury to use extraordinary measures, but only for a few months.

{mosads}With more money going out than coming in, Treasury would be forced to leave at least some obligations unpaid.

The moment Treasury misses a payment, we default. Markets’ confidence in the government to repay bondholders will be shaken. In exchange for holding historically rock-solid U.S. treasuries, investors would demand higher interest rates. Uncertainty would ripple through markets. Credit markets would seize, and the dollar would fall. Put simply, we’d have a global recession.

How can we be sure? Greece, with an economy the size of Connecticut, defaulted on its rather meager debt and dragged down Europe and stunted global growth. With the largest economy in the world, a U.S. default would be catastrophic to the global economy. 

Like nuclear bombs, no one has exploded sovereign default on our home soil before. So while the consequences are hard to predict, even conservative estimates are startling: the Dow Jones would plunge 1,000 points, the U.S. economy would contract by 1%, and 700,000 U.S. workers would lose their jobs. That’s just in the first year.

This is where temperament comes in. As Hillary Clinton said, “A man you can bait with a tweet is not a man we can trust with nuclear weapons.” Nor can we trust him with the faith and credit of the United States Government.

This isn’t just speculation. Donald Trump has already stated his willingness for the U.S. Government to default. In a June 22 CBS interview, Trump said, “Nobody knows debt better than me. I’ve made a fortune by using debt and if things don’t work out, I renegotiate the debt … you go back and you say, ‘Hey, guess what? The economy just crashed. I’m going to give you back half.’”

The thing is, you can’t renegotiate public debt the way you can private debt. There are millions of creditors to the U.S., and they include foreign governments, individual investors, pension funds, universities, and the Social Security Trust Funds, among many others.

What Trump could do — without consent of our creditors — is unilaterally leave parts of our debt unpaid. Some Republicans in Congress have already embraced this idea. They call it debt prioritization.

For the most aggressive members of the GOP, projecting indifference toward default has become a favorite weapon. In 2011, Republicans wielded the debt ceiling to extract government spending cuts. That’s when S&P downgraded the U.S. government debt for the first time. In 2013, a band of House Republicans led by Senator Ted Cruz (R-TX) deployed the debt ceiling in an effort to repeal Obamacare. They failed, but not before provoking a government shutdown and denting the recovery.

In each case President Obama played the responsible adult, imploring Congress to do its job and allow him, the executive, to pay the bills legislators had incurred. But just being president didn’t automatically cast Obama as the adult. A president could very well act like congressional Republicans — refusing to sign a debt limit bill unless opponents accede to his or her demands.

Now imagine Trump in the Oval Office on March 16, just 8 weeks into his presidency. It’s time to raise the debt limit. Does Trump implore Congress to act responsibly? Who knows? He’s just as likely to seize the weapon, demanding concessions from Congress in hopes they cave like an Atlantic City mayor begging for a casino.

Once Donald Trump seizes that weapon, all bets are off. His willingness to default will become his leverage. And Donald Trump doesn’t blink first. So while we worry whether Trump is temperamentally fit to hold the nuclear codes, we should also ask whether he’s fit to hold the fate of the economy in his hands as well.

Many question Donald Trump’s fitness and temperament to serve as commander-in-chief but what has gotten much less attention is the havoc he could wreak on our economy. The crisis could begin just 55 days after inauguration.

David Brown is the Deputy Director for Third Way’s Economic Program.

The views expressed by Contributors are their own and are not the views of The Hill.