During the first meeting between President-elect Donald Trump and his top economic adviser, Trump appeared confused by elements of the federal debt and US monetary policy.
The veteran journalist Bob Woodward’s new book, “Fear: Trump in the White House,” describes a conversation between Trump and Gary Cohn, the former director of the National Economic Council. Business Insider obtained a copy of the book, which is being published by Simon & Schuster and is set to be released Tuesday.
During the meeting at Trump Tower in November 2016, Cohn touched on a series of economic issues, including the Federal Reserve. Cohn told Trump that the Fed would most likely increase interest rates during his term. Trump then offered an idea of how to deal with the rising rates.
“We should just go borrow a lot of money, hold it, and then sell it to make money,” Trump said, according to the book.
While Trump was correct that many private businesses issue debt at a time of low interest rates, Cohn was “astounded at Trump’s lack of basic understanding” about what the government borrowing would mean, Woodward wrote.
During the campaign, Trump ran on a promise to eliminate the federal debt during his presidency. Borrowing more would increase the deficit and add to that debt, Cohn explained. The president-elect offered a solution.
“Just run the presses — print money,” Trump said, according to Woodward.
Cohn suggested that would be detrimental to the fiscal and economic health of the US, since printing vast amounts of money is thought to lead to inflation. But Trump returned to the idea later in the conversation.
Cohn also pointed to the federal debt ceiling, a statutory limit to the amount of debt the federal government can have outstanding. Even approaching the debt ceiling can be harmful to the stock market and US economic growth.
But according to Woodward, Cohn’s message did not seem to connect.
“It was clear that Trump did not understand the way the US government debt cycle balance sheet worked,” Woodward wrote.
Trump’s view on the debt is perhaps best espoused by Modern Monetary Theory, a burgeoning theory among some economists positing that the federal debt is not an economic restraint for the US. But MMT is not generally accepted by lawmakers of either party, most likely making it politically untenable at this point.
The back-and-forth over the debt was just the first clash between Cohn and Trump on economic policy, according to Woodward’s book. The pair fought over Trump’s desire to place tariffs on imports, and Cohn is said to have stolen documents off Trump’s desk to prevent the president from pulling the US out of major trade deals.