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Trump and the Risk of a US Debt Default

There is good reason to worry that if Donald Trump is elected this November, he will exhibit all the recklessness and risky behavior that has characterized past second-term US presidents. The most urgent and obvious issue to watch would be US debt, given Trump's well-known propensity for declaring bankruptcy.

NEW YORK – Donald Trump knows a thing or two about defaulting on debt. His businesses have filed for reorganization under Chapter 11 of the US Bankruptcy Code at least four times to overcome excessive indebtedness – first with Trump Taj Mahal in 1991, then Trump Plaza Hotel in 1992, Trump Hotels and Casino Resorts 12 years later, and Trump Entertainment Resorts in 2009.

Moreover, Trump openly boasts about this strategy. “I have used the laws of this country just like the greatest people that you read about every day in business have used the laws of this country, the chapter laws, to do a great job for my company, for myself, for my employees, for my family,” he said in 2015. No wonder there has been speculation that he may choose bankruptcy over paying the $450 million penalty that he owes to the state of New York following his civil conviction for fraud.

While personal bankruptcy would be a matter between Trump and New York, his fondness for “the chapter laws” ought to concern us all. If Trump is elected president in November, he will face a similar but far larger credit problem: the US government’s growing debt burden. Trump might try to resolve the issue by defaulting, just as he has done for his businesses. This is a low-probability event, but one that would have catastrophic consequences, which could help explain the rise of the price of gold to all-time highs this year as Trump’s presidential prospects have grown.