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Donald Trump's Economic Apocalypse

Under Trump's Debt Default Plan, Texas Home Prices Could Plummet and 266,000 Jobs Could Be Lost

Donald Trump Finally Talked About Policy. It really, really didn't go well.

A new study finds that Trump's plan to default on U.S. debt could cost Texas as many as 266,000 jobs, and reduce the price of homes by $55,000. These stark consequences would prove disastrous to middle class families across our great state.

Let's start from the beginning...

In a major economic speech on Monday, Donald Trump laid out a plan to dramatically increase America's debt. His remarks upset economic investors from across the political spectrum - and reminded everyone of one of the most bizarre and dangerous ideas he's proposed:

In order to pay down U.S. debt, Donald Trump thinks he can convince whoever the country owes to accept less money.

The New York Times wrote about this dangerous idea in May ("Donald Trump's Idea to Cut National Debt: Get Creditors to Accept Less"). Not long after, the Wall Street Journal reported how his plan to default on U.S. debt follows a familiar pattern for Trump, the businessman ("Donald Trump's Business Plan Left a Trail of Unpaid Bills.")

Now, following his major economic speech, we can quantify just how bad an idea it is.

The Center for American Progress has just released a study that shows the state-by-state impact of Trump's plans:

His proposal to make a so-called deal on the national debt to not fully pay back U.S. creditors [is] essentially a default. Such a move would cause a sharp increase in interest rates, as lenders would require extra money to compensate them for extra risk.

The Center for American Progress Action Fund estimates that this would have a ripple effect throughout the economy, destroying middle-class wealth and jobs. A default on the national debt could cost a typical homeowner $72,000 in lost home value and kill 3 million jobs.

Here's how it all would work.

Defaulting On Our Debt --> Higher Interest Rates --> Shrinking Home Prices & Fewer Jobs

In March 2017, the United States will have to raise the debt ceiling. You may remember Republicans playing chicken with the debt ceiling in 2011, to almost disastrous effects. Trump's refusal to pay our bills would put us right back in danger. The downward cycle would impact every state in the country, including Texas.

1. Texas Could Lose 266,000 Jobs

Losing 266,000 jobs is the predicted outcome of a 5% increase in the interest rate. For context, when Greece defaulted on their debt, interest rates went up 50%.

Here's the specifics from CAP's excellent report:

The consequence of a Donald Trump “deal” on the federal debt would be a catastrophe. U.S. debt is used throughout the world because it is widely viewed as a risk-free asset, but a default would destroy that. This would cause interest rates to rise, as buyers of U.S. debt would require extra return on their investment—more money—to compensate them for the increased risk. This also would have an immediate negative impact on American families, who would pay more for their credit card balances, mortgage payments, and student loans, since their interest rates are tied to the interest rate on U.S. debt.

2. Texas Home Prices Could Plummet by $55,000

Again, from the Center for American Progress:

Higher interest rates resulting from a Trump-manufactured default would make it more expensive for people to buy homes, which in turn would reduce the value of houses because there would be fewer buyers.

I guess it turns out Donald Trump is just as bad at policy as he is at politics.