Alexander Hamilton is on the $10 bill—but will Trump trash the dollar? Photo: © Alex White / Alamy Stock Photo Trust is everything. Donald Trump is going to teach you that—and sooner rather than later. Here’s the game—there are all these bad things that are going to happen because Trump’s not managing the government. Nothing really bad’s happened yet that you can trace to government mismanagement, unless you’re in Puerto Rico or you’re a kid in a cage on the border. But his wilful ignorance is ripping America’s fabric. In time, that will erode faith in all sorts of institutions, and play out in all sorts of ways no one will be able to ignore. What kind of thing might I mean? Let me give you an example, even if it’s something that sounds preposterous now. It seems to me perfectly plausible to imagine that Trump is on a collision course to default on the US’s national debt. I think he’s going to stand up at a rally whenever something gets bumpy and say “we don’t actually owe the Chinese that money.” If you look at him, he’s a trust-devouring machine. Everywhere he goes, he finds the thing where there is still trust and he undermines it. He’s undermined trust in the media, he’s undermined trust in the electoral process, he’s undermined trust within the political process—he’s changed relationships between Republicans and Democrats on Capitol Hill. So what’s left? The money. People still trust the dollar, and it’s amazing to me. Because if I were a foreigner I’d be looking at Trump and thinking, “this guy doesn’t pay back his loans. He’s stiffed people his whole life and he has no compunction about that.” That would make me worried. He’s already making noises about the Federal Reserve, saying Jerome Powell, the Governor, is destroying the stock market. But the minute Trump says, at some rally, “Oh, we don’t have to pay that back. They stole that money in bad trade deals,” what happens in financial markets is possibly catastrophic. Because if you get a free-falling dollar that’s under siege, you don’t really have a mechanism for arresting that. Well, you did
used to have a mechanism for arresting a financial crisis—but that mechanism was… the government, a government that this man now controls.
I can’t believe no one’s got it into their heads that this is a real risk, because Trump really is that bad. A lot of people haven’t got there yet because they think, “Well, he’s a rich guy with a lot of rich friends and they wouldn’t want that to happen.” But just remember this: Trump’s got huge dollar debts that shrink if the dollar freefalls, so he’s inflationary. He likes the dollar getting weaker because then he’s always paying back less than he borrowed. Also, he owns real assets: land, buildings, hotels and so on: those things will be fine. You don’t even have to default on the debt to unleash chaos; you just have to generate enough political interest in the idea that you can default. If he said that to an arena full of Trump supporters in Georgia, they’d all say: “Yeah!” And when he hears that, he’ll just say it again and again. Lots of cooler heads might say “That’s not possible. You just wouldn’t do that; why would you?” But once you’ve let that idea loose in the world, it might create its own reality. I’m just waiting for that moment. He hasn’t had to do it yet because he was given a healthy economy. He’s juiced the stock market by cutting business taxes, but at some point this little sugar high we’re on is going to end, and there’s not going to be another source of that high. Those tax cuts have worked a bit, but business investment hasn’t increased. Instead there’s been a return to shareholders. Business confidence is high, but that’s not being reflected in actual business behaviour. Instead, the momentum has come from cutting taxes in a strong economy and running huge deficits. This is what policy is supposed to be at the back end of a financial crisis, not at the back end of a spell of decent growth. Debt is higher than it should be. If Trump hits trouble, defaulting on all that debt might be his answer. He has bankrupted faith in clean and competent government. The whole world could soon learn to its cost just how debased promissory notes can become when promises made by the man in charge are worth nothing at all. As told to Prospect’s Jay Elwes. Michael Lewis’s latest book is “The Fifth Risk” (Allen Lane)Read more new thinking for 2019“The minute Trump says ‘we don’t have to pay that back,’ what happens in financial markets is catastrophic”
