The first was with the Trump Taj Mahal in 1991. That was followed by the failed Trump Plaza Hotel in 1992. Twelve years later came Trump Hotels and Casino Resorts. Finally, there was the Trump Entertainment Resorts in 2009.
So, what does that mean? For better or worse, the U.S. president is no stranger to walking away from debt.
Debt holders worry?
It’s fair to say Trump has used the Chapter 11 Bankruptcy Code to his advantage several times on his road to making billions. Ultimately, he has let others foot the bill for his entrepreneurial miscalculations. That was bad news for Trump’s former creditors.
So, could U.S. dollar debt holders be at risk if Trump decided to walk the nation away from its obligations? That’s an unthinkable scenario in the world of finance. After all, U.S. bonds are the global safe-haven asset.
Yet, we live in a world where our traditions are being flipped, especially in the financial arena. From triple-digit tariff hikes to threats to abolish the U.S. Federal Reserve, investors can’t afford to take anything for granted.
Treasuries safe?
According to Warren Buffett, the world’s best investor, U.S. government bonds are the world’s safest investment. Buffett parked Berkshire’s massive cash pile into U.S. T-bills, essentially a short-term government bond or debt.
When Buffett was asked whether he believed the U.S. could ever default, he responded:
“When the government can just keep on printing money to pay their own debt, it’s laughable to think they will ever default.”
But what he may not have considered at the time was a country led by a leader who’s no longer following the rule book. Trump is highly unconventional, and Buffett has lived through a period of presidents who’ve played ball with the financial elite in America.
So, it begs the question: Could Trump renege on U.S. debt if there’s a potential advantage?
For the moment, Polymarkets puts that at about a 3% chance. So very slim indeed.
But consider this: the U.S. now holds a staggering $36.2 trillion in debt on its books, about a third of which is held by foreign nations, primarily China, Japan and the UK.
And according to the chief strategist at Bank of America, America’s debt is rising by about $1 trillion every 100 days. While a U.S. default seems improbable now, when push comes to shove, anything’s possible.
And if you think that’s a reckless statement, well, history might say otherwise.
Empires default
History shows that when the national debt becomes so cumbersome, it can be simpler to walk away from that obligation. Interestingly, sovereign defaults often occur during phases of major change.
While not a regime change, Trump represents something close to that when you compare him to the history of “yes-men” presidents who have generally played ball with the powers that be.
For better or worse, Trump is an existential risk to this establishment. And that includes a financial system that feeds off the notion of continually rolling over its national debt.
Grand sovereign defaults are born from new governments questioning the legitimacy of earlier ones and their spending habits. The French Revolution is a great example.
By 1783, France was swimming in debt from participating in the Seven Years’ War and the American Revolution. However, rather than address the problem, King Louis XVI and his wife Marie-Antoinette, through their self-indulgent tendencies, sent the country further into debt.
We know how that played out. Heads rolled. A new government was formed. But as part of that process, France walked away from its creditors, meaning years of unpaid debt and royal extravagance would go unpaid. Ultimately, the French Empire defaulted on its debt.
Russia, too
Similar events played out as the new Soviet government emerged in 1917. It defaulted on its national debt, which was also racked up by its pre-revolution imperialist leaders.
Empires defaulting on their debt seem inconceivable, but it’s not unprecedented. So, it is essential to remember this when the next major crisis occurs: as empires crumble, precious metals reign.
And something else to remember: The only thing certain in life is change. Investors need to be adaptable and open to major adjustments. Especially right now.
Yet, there is one thing that will never change in this system. After thousands of years of crumbling empires, and once secure currencies turn to dust, gold still holds its value.
James Cooper is a geologist based in Australia who runs the commodities investment service Diggers and Drillers. You can also follow him on X @JCooperGeo.
