clear
Monday November 19th, 2018 2:48AM

AP Analysis: Trump's economic policy rooted in debt

By The Associated Press
Related Articles
  Contact Editor

WASHINGTON (AP) — One clear principle runs through President Donald Trump's emerging economic policy: Debt is good.

When defending a tax plan or laying out his budget, the man who once called himself "the king of debt" is trying to persuade Americans there's no price to pay for running trillion dollar budget deficits over the next few years. Stronger economic growth will permanently follow the borrowing spree, officials argue, even as many economists and investors already warn about what could happen when the debt becomes due.

The White House budget plan released Monday is the latest example of the Trump principle. The budget proposal not only envisions soaring deficits through 2020, but it also outlines an infrastructure plan that would encourage state and local government to borrow heavily. The result, the plan suggests, would be exceptional growth that would then cause deficits to fall. The proposal assumes economic growth will climb above 3 percent and eventually settle into a solid 2.8 percent groove.

The plan amounts to a gamble that nothing can slow a high-flying U.S. economy and force a reckoning over the debt. Not higher interest rates. Not rising inflation. Not a foreign crisis. Not an aging U.S. population. Not even — based on the budget plan's own estimates — an increase in the unemployment rate. Should the economy stumble, the risk is that the gravitational pull of the debt would worsen as the government would likely borrow more to stop a downturn.

"They're assuming that the expansion lasts forever, basically," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics. "You have to ask what will ultimately happen when we do go into a recession."

O'Sullivan expects that ratings agencies could downgrade the U.S. government's credit rating. He cites the $1.5 trillion higher debt after Trump signed tax cuts into law last year and the bipartisan deal reached last week to fund the government through 2019, which puts the U.S. on track to hit trillion-dollar deficits next year.

Trump's willingness to embrace debt is in direct contradiction to years of Republican rhetoric on the dangers of deficits and breaks his campaign promises. As a candidate, Trump vowed not just to balance the budget but pay down the entire national debt, which is currently $20.5 trillion.

But as a businessman, Trump was anything but debt averse. Several of his companies filed for bankruptcy protection after being unable to service debt, leaving investors and contractors with losses. Trump portrayed this experience during the campaign as proof of his financial shrewdness.

"I'm the king of debt. I'm great with debt. Nobody knows debt better than me," he told CBS News in 2016, adding if he was unable to fully honor any obligations that he would tell investors that "the economy just crashed" and renegotiate the terms. But Trump has cautioned that he likes debt for his companies but not the country, saying that the government was "sitting on a time bomb" with its yearly deficits.

For now, the Trump administration is saying that the U.S. economic landscape has been overhauled over the past year. With the passage of the tax cuts, the economy is now set for a long-term acceleration, rather than a quick gain followed by a slowdown.

"It's not a sugar high," White House budget director Mick Mulvaney told Fox News Sunday. "We have fundamentally changed the structure of the American economy to where we think we can change the long-term trends of our growth possibilities."

But investors are unconvinced. They're already starting to charge the government higher interest rates in anticipation of rising deficits. The yield on the 10-year U.S. Treasury climbed as high as 2.89 percent on Monday, up from a recent low of 2.06 percent in September.

Many forecasters assume that any economic upswing is temporary, but the Trump budget sees no end in sight.

Trump's budget overlaps with the mass retirement of baby boomers, whose use of programs such as Medicare and Social Security will likely cause government expenditures and the debt to keep increasing. Indeed, the government is borrowing more at a moment when unemployment is already at a 17-year low of 4.1 percent, a time when many economists say it should be repairing its balance sheet by borrowing less.

Even before the tax cuts and two-year spending deal, the Congressional Budget Office estimated that publicly held debt would equal more than 90 percent of the U.S. economy in 2027. The Trump budget assumes savings that would put the debt at less than 75 percent of the economy.

Trump achieves some of his debt savings by slashing Medicare by $554 billion over the next decade among other substantial cuts to programs at the Labor Department, the Environmental Protection Agency and elsewhere. But he also assumes that the entire economy will be $3.1 trillion bigger than previously forecast because of his policies.

Some of that growth would potentially come from new roadways and upgraded airports. But states appear to be increasingly hesitant to borrow more than they otherwise would for infrastructure projects, despite the financial incentives being introduced by Trump.

State budgets are already being squeezed as costs for education and programs such as Medicaid are rising faster than tax revenues, said Gabriel Petek, a managing director at Standard & Poor's Global Ratings.

"The plan doesn't appear to fundamentally alter existing incentives at the state level," Petek said. "The states we have been talking to are not eager to take on more debt."

  • Associated Categories: Associated Press (AP), AP National News, Top General short headlines, AP Business, AP Business - Economy, AP Business - Financial Markets
© Copyright 2018 AccessWDUN.com
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
Seattle eyes taller, denser in affordable housing proposal
Seattle officials want to add more affordable housing, and they're looking to taller, denser buildings.
5:32PM ( 11 minutes ago )
Kennedy out as Mississippi basketball coach after season
Coach Andy Kennedy and Mississippi are parting ways after 12 seasons
5:21PM ( 22 minutes ago )
Vanessa Trump taken to hospital after white powder scare
Police say Donald Trump Jr.'s wife has been taken to New York City hospital after opening an envelope that contained white powder
5:13PM ( 31 minutes ago )
Associated Press (AP)
Stocks power higher after a dreadful week; Dow jumps 410
Stocks jump again as the market claws back some of its massive losses last week, when it slumped into a 'correction' for the first time in two years. The Dow gained 410 points.
4:47PM ( 56 minutes ago )
Grand Canyon crash that killed 3 took place on tribal land
A helicopter crash that killed three Britons and left four others critically injured happened on tribal land, an area where air tours are not as highly regulated as those inside the boundaries of Grand Canyon National Park
4:45PM ( 58 minutes ago )
Ohio man charged with providing gun that killed officers
The government has arrested a man accused of providing the gun used in the fatal shooting of two Ohio police officers
4:40PM ( 1 hour ago )
AP National News
Police: Donald Trump Jr.'s wife exposed to white powder
Police say Donald Trump Jr.'s wife has been taken to New York City hospital after opening an envelope that contained white powder
2:33PM ( 3 hours ago )
Trump's $4.4 trillion budget moves deficit sharply higher
President Donald Trump unveils a $4.4 trillion budget for next year that heralds an era an $1 trillion-plus federal deficits
2:13PM ( 3 hours ago )
Trump's plan to rebuild US roads relies on local dollars
President Donald Trump on Monday will unveil his long-awaited infrastructure plan, a $1.5 trillion proposal that fulfills a number of campaign goals but relies heavily on state and local governments to produce much of the funding
10:52AM ( 6 hours ago )
Top General short headlines
Oliver relishes being able to do show without restrictions
HBO's John Oliver says he and "Last Week Tonight" would go down screaming if new corporate management imposes restrictions
4:21PM ( 1 hour ago )
Air bag danger: Ford, Mazda add pickups to do-not-drive list
Ford and Mazda are adding more than 35,000 pickup trucks in North America to a list of vehicles that should not be driven because they have Takata air bag inflators with a high risk of exploding
3:51PM ( 1 hour ago )
Sale of Harvey Weinstein's company up in air after lawsuit
New York's top law enforcement official said Monday that executives at Harvey Weinstein's movie studio enabled the mogul's sexual misconduct and "covered it up."
3:22PM ( 2 hours ago )
AP Business
Stocks power higher after a dreadful week; Dow jumps 500
Stocks are powering higher as the market claws back some of its massive losses last week, when it slumped into a 'correction' for the first time in two years
2:19PM ( 3 hours ago )
Markets Right Now: Stocks surge; Dow industrials gain 500
Dow gains 500 points as stocks claw back some of their massive losses from last week.
2:08PM ( 3 hours ago )
APNewsBreak: Long-stalled Vegas casino-resort gets new life
A Las Vegas property that's sat unfinished for nine years is shrugging off its identity as a poster child of the Great Recession with plans for it to become a casino-resort called The Drew
12:52PM ( 4 hours ago )
AP Business - Economy
Asian markets mostly higher after Wall Street gains
Asian stock markets are mostly higher after Wall Street gained following a turbulent week
10:39PM ( 19 hours ago )
New gold rush: Energy demands soar in Iceland for bitcoins
Virtual currency mining companies establish base in Iceland
3:37PM ( 1 day ago )
Stock drop could pose risk to US economy _ if it endures
Plummeting stock market seems unlikely to slow US economy _ unless it rages on
9:58AM ( 1 day ago )
AP Business - Financial Markets
Seattle eyes taller, denser in affordable housing proposal
Seattle officials want to add more affordable housing, and they're looking to taller, denser buildings.
5:32PM ( 11 minutes ago )
Kennedy out as Mississippi basketball coach after season
Coach Andy Kennedy and Mississippi are parting ways after 12 seasons
5:21PM ( 22 minutes ago )
Vanessa Trump taken to hospital after white powder scare
Police say Donald Trump Jr.'s wife has been taken to New York City hospital after opening an envelope that contained white powder
5:13PM ( 31 minutes ago )
Milwaukee prosecutors charge jail staff in inmate's death
Prosecutors filed criminal charges against three Milwaukee County jail staffers for their role in the dehydration death of an inmate who spent a week without water
5:09PM ( 35 minutes ago )
Agency-by-agency highlights of Trump's 2019 budget
Agency-by-agency highlights of Trump's 2019 budget
5:08PM ( 36 minutes ago )