I know that this will cause the Usual Suspects to accuse me of supporting Trump, but most of what he said is correct and we did a lot of it during the Obama administration:
What Trump meant to say was that if interest rates rise he would consider buying back existing U.S. debt at a lower prices. As interest rates rise, the price of existing debt goes down.
"In other words, we can buy back debt at a discount. People said I wanted to go and buy debt and default on debt, these people are crazy," Trump said.
It's called monetizing the debt, and the Fed does it all the time:
A nation monetizes its debt when it converts debt to credit or cash. It frees up capital that's locked in the debt and puts it into circulation. The only way it can do this is with its central bank. The central bank purchases the government debt and replaces it with credit. The bank puts the debt on its balance sheet. It creates the credit out of thin air. A central bank is the only bank that can legally do this."This is the United States government," Trump said. "First of all, you never have to default because you print the money, I hate to tell you."
This one he is only partially correct, no money is printed but the Fed credits are basically the same, even though no money is printed:
The Federal Reserve monetizes the U.S. debt when it buys U.S. Treasury bills, bonds and notes. When the Federal Reserve purchases these Treasurys, it doesn't have to print money to do so. It issues credit to the Federal Reserve member banks that hold the Treasurys. It then puts the Treasurys on its own balance sheet. It does this through an office at the Federal Reserve Bank of New York. Everyone treats the credit just like money, even though the Fed doesn't print cold hard cash. Lump this in with Quantitative Easing ("QE") and the Fed is basically "printing money:
How does this monetize the debt? When the U.S. government auctions Treasurys, it's borrowing from all Treasury buyers. These include individuals, corporations and foreign governments. The Fed turns this debt into money by removing those Treasurys from circulation.
Decreasing the supply of Treasurys makes the remaining bonds more valuable.
These higher-value Treasurys don't have to pay as much in interest to get buyers. This lower yield drives down interest rates on the U.S. debt. Lower interest rates mean the government doesn't have to spend as much to pay off its loans. That's money it can use for other programs.
It is as if the Treasurys bought by the Fed didn't exist. But they do exist on the Fed's balance sheet. Technically, the Treasury must pay the Fed back one day. Until then, the Fed has given the federal government more money to spend. That increases the money supply, thus monetizing the debt.
Most people didn't worry about the Fed monetizing the debt until the 2008 recession. That's because until then, open market operations weren't large purchases. Between November 2010 and June 2011, the Fed bought $600 billion of longer-term Treasurys. That was the first phase of Quantitative Easing, known as QE1.
There were four phases of the QE program that lasted until October 2014. The Fed ended up with $4.5 trillion in Treasurys and mortgage-backed securities on its balance sheet.
On June 14, 2017, the Fed said it would reduce its holdings so gradually it wouldn't need to sell them.
Once the fed funds rate reaches its target of 2.0 percent, the Fed would allow $6 billion of Treasurys to mature without replacing them. Each month it would allow an additional $6 billion to mature. Its goal is to retire $30 billion a month.