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MarketWatch First Take

Opinion: Trump’s comments about stock gains reducing debt aren’t as crazy as they sound

Linking debt growth to asset accumulation is how the issue should be framed


Now we’ve got him.

President Donald Trump went on his second-favorite television show, “Hannity,” on Wednesday, and discussed one of his favorite topics, the stock market:

“The country, we took it over and owed over $20 trillion. As you know, the last eight years, they borrowed more than it did in the whole history of our country. So they borrowed more than $10 trillion, right? And yet, we picked up $5.2 trillion just in the stock market. Possibly picked up the whole thing in the first nine months, in terms of value. So you could say, in one sense, we’re really increasing values. And maybe in a sense we’re reducing debt. But we’re very honored by it.”

What a maroon!

Except ... it’s not an entirely crazy way to look at the issue.

Yes, the debt burden, to the extent that it actually matters, is spread across every taxpayer, while stocks are not widely held and, in fact, are concentrated among the rich.

And stock-market gains are on paper (though one can borrow against them without selling). Plus U.S.-traded stocks are not 100% owned by Americans.

Still, to a degree, the ability to service the debt has improved because of the stock market’s rise. Some portion of that $5 trillion or so will make it into the hands of Americans, who will both increase economic activity as well as ultimately pay taxes on it to Uncle Sam.

Would I have linked it that way? No, a far more appropriate measurement would be to compare the national debt to the size of the national economy.

The question of whether the U.S. has too much, too little or just enough debt is for another day. But thinking about debt in terms of what it actually buys,which is kind of what Trump did, is how debt should be considered. That the U.S. is $20 trillion in debt is only good or bad news to the extent that the money is and was productively used.

If the U.S. grows its debt to build bridges to nowhere, then, no, that’s not a wise use of money. If the U.S. funds expansions of education or infrastructure that allow for better and more economic activity, then it’s money not just well spent, but as Trump would say, in a sense reduces debt.

And, in any case, Trump’s comments are a far better construct for evaluating the national debt than that of the zero-sum tea partiers.

Trump's Risky Stock-Market Boasts