WASHINGTON ― President Donald Trump on Wednesday again attacked the Federal Reserve Board and demanded members drop interest rates “to ZERO, or less” ― a move that would benefit him personally by some $8 million a year.
Trump has approximately $340 million in variable-rate loans from Deutsche Bank financing several of his properties, with the amount of interest he must pay annually tied either directly to the benchmark set by the Fed or to a rate that in turn rises and falls with the Fed rate.
Bloomberg News estimated that each quarter point reduction in the Fed rate saves Trump some $850,000 ― meaning that if the central bank dropped that rate from the current 2.25% down to zero, Trump’s own interest payments would drop $7.65 million annually.
“It is hard to see this as anything other than an attempt to save millions of dollars a year,” said Jordan Libowitz from the watchdog group Citizens for Ethics and Responsibility in Washington. “In a presidency defined by Trump’s personal profits, he does not deserve the benefit of the doubt.”
Trump’s White House did not respond to HuffPost queries on the matter, or on the rationale for taking such drastic measures in a relatively strong economy. The Federal Reserve Board last lowered interest rates to zero during the financial crisis a decade ago. Rates have never been below zero ― meaning the central bank would pay borrowers to take money ― although that tactic is being used in Europe and Japan to stimulate their economies.
Trump has been attacking the Federal Reserve Board for over a year, and in particular its chairman, Jerome Powell, whom he himself appointed to the job. Wednesday’s broadside came in a pair of tweets sent at 6:42 a.m.:
“The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term. We have the great currency, power, and balance sheet…. The USA should always be paying the the [sic] lowest rate. No Inflation! It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing. A once in a lifetime opportunity that we are missing because of ‘Boneheads.’”
Carlos Barria / Reuters President Donald Trump looks on as Jerome Powell, then his nominee to become chairman of the Federal Reserve, prepares to speak on Nov. 2, 2017.
Such a strategy of refinancing the entire $22 trillion national debt would mirror the one he used in the 1990s in his personal bankruptcy battles over his failed casinos. While Trump ultimately lost the casinos, the Plaza Hotel in New York City, his airline, his personal jet and his 282-foot yacht, he was able to avoid personal bankruptcy and arrange for himself a hefty $450,000-per-month living allowance by arguing that if he went bankrupt, his lenders could go down with him. At the time and in subsequent years, he boasted of this experience and even called himself “the king of debt.”
“Yeah, but that doesn’t work for a country!” laughed Mark Sanford, a former congressman and governor of South Carolina who is now challenging Trump for the 2020 Republican nomination. “Unfortunately, as Americans we are not in that position.”
Trump promised during his campaign that he would eliminate the national debt entirely over two terms in office. Instead, because of the tax cut bill and the significant spending increases he has signed into law, the opposite has happened. The Congressional Budget Office reported Monday that the deficit for the current fiscal year surpassed $1 trillion, with a month still to go. Former President Barack Obama had deficits that large early in his first term, but that was during the financial crisis. Trump’s are coming in a healthy economy.
“This is a complete about-face as to that promise,” Sanford said, adding that Trump’s assessment that the country has a great “balance sheet” makes little sense. “Only in the president’s mind could a trillion-plus-dollar deficit in peacetime and relatively benign economic conditions be called a good financial situation.”
Economic experts, meanwhile, questioned the logic behind Trump’s proposed plan to refinance the existing debt.
Trump’s own Treasury Department already looked at issuing bonds with maturity periods far longer than the 30-year current maximum, and concluded they were not a good idea, said Joel Prakken, the chief United States economist at IHS Markit.
And while Trump’s statements suggest that the government should “refinance” its debt to get lower rates, that already happens “all the time” as bonds mature and new bonds are issued at the lowest price the Treasury can get at any given moment. “That’s something the Treasury does automatically,” Prakken said.
What’s more, the outstanding bonds come due according to their maturity dates, which is not something Trump can change. “I don’t think Treasury notes have a call option on them,” Prakken joked. “So I don’t think that’s going to go anywhere.”