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Obama's former economic advisor calls Trump's debt idea 'borderline insane'

Andy Serwer
Editor in Chief

President Obama’s former economic advisor Austan Goolsbee called Donald Trump’s idea of not fully repaying investors in U.S. Treasuries “borderline insane.” Pulling no punches, Goolsbee, currently a professor of economics at the University of Chicago Booth School of Business, continued about Trump saying, “Either he’s confused or he’s completely off-base…or both.”

In an interview at the SALT Conferences in Las Vegas, Goolsbee noted that while so called “haircutting” may have worked for the presumptive Republican presidential nominee while he was a businessman, particularly in the junk bond market, U.S. Treasuries are a very different kind of animal and that treating them like junk bonds would have dire consequences. Last week on CNBC, Trump said, of dealing with the national debt: "I would borrow, knowing that if the economy crashed, you could make a deal."

“Treasuries are the opposite of junk bonds,” Goolsbee said. “It’s the safest asset on the planet. Whenever anything goes wrong, money floods into Treasuries and actually our interest rates go down when there’s a crisis. To propose anything that would threaten that is, it sounds extreme... It really doesn’t make any sense.”

Goolsbee said it was no secret that he was a Hillary Clinton supporter and spoke about why he felt Trump was unfit to be president: “I think a guy who has proven the temperament that Trump has, to play by the seat of his pants and just fly off and say maybe I’ll haircut Treasuries and maybe I’ll start three trade wars simultaneously or things like that, that is not a temperament of a person you want in the Oval Office."

Goolsbee, the former chairman of President Obama’s Council of Economic Advisers, also took odds with the Federal Reserve’s stated policy of raising interest rates this year, saying that the Fed has “changed their reaction function, we don’t really know what’s going through their head now. But I don’t think the economy has changed. I think the economy is still plugging along at a modest pace." Goolsbee said that the Federal Reserve “at most raises one time this year. The conditions do not warrant moving to severe tightening at this time.”

And a little known fact: As an undergraduate at Yale, Goolsbee debated—and beat—recently departed presidential candidate Ted Cruz who was then an undergraduate at Princeton in the American Parliamentary Debate Association's National Debate Team of the Year competition in 1991. So was Goolsbee surprised that Cruz became a significant candidate? “I wasn’t surprised. I told all the Democrats that they underestimate Ted Cruz at their own peril. [Cruz is] a very shrewd thinker, planner. He got relatively close.”

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