For decades, Scott Bessent noticed the cracks before the collapse. The hedge fund manager built a career finding and exploiting the gap between what governments promised and what economic reality would allow. Most famously, Bessent was on the George Soros team that bet against the British pound in 1992 as Britain insisted it could defend an exchange rate the market regarded as unsustainable. Britain blinked. The pound crashed. The bet made Soros’ fund more than $1 billion.
Today, as Treasury secretary, Bessent finds himself on the other side of the trade. He is responsible for financing a government whose gross national debt just crossed $40 trillion. The yield on the 30-year Treasury bond climbed above 5.3%, its highest level since 2007. Then on Wednesday, in an unexpected move, Bessent’s Treasury Department announced that it would double some of its purchases of long-term government debt, from $2 billion to at least $4 billion at a time. The sums sound large, but they are tiny in a Treasury market worth more than $32 trillion.
He entered office promoting a “3-3-3” plan: 3% economic growth, 3 million more barrels of oil a day, or the equivalent from other energy sources, and a federal budget deficit reduced to 3% of gross domestic product by 2028.
It worked — for a day. Long-term borrowing costs fell noticeably. But Jim Bullard, the former president of the Federal Reserve Bank of St. Louis, said he does not believe that it “changes the fundamentals of big fiscal deficits and a Fed on the sidelines,” which he said are driving long-term yields higher.
Bessent, though, set himself a harder test than this one.
He entered office promoting a “3-3-3” plan: 3% economic growth, 3 million more barrels of oil a day, or the equivalent from other energy sources, and a federal budget deficit reduced to 3% of gross domestic product by 2028.
He is not on track to hit those goals.
The nonpartisan Congressional Budget Office now estimates this year’s deficit at $2.1 trillion — about $200 billion worse than it projected in February and about twice as high as Bessent’s target of 3% of GDP. That deterioration reflects, in part, weaker revenue after the Supreme Court struck down Trump’s tariffs imposed under the International Emergency Economic Powers Act. The termination of those tariffs will add an estimated $2 trillion to deficits from 2026 through 2036, including added interest costs.
Meanwhile, the CBO’s latest budget outlook estimates that the tax-and-spending law Trump signed last year will increase projected deficits by $4.7 trillion from 2026 through 2035, after accounting for its economic effects and added debt-service costs.
America’s debt problem was built over decades by both parties. But this administration’s policies and choices have added substantially to it.
This week’s bond selloff had many causes. Inflation fears, geopolitical turmoil and a broader global bond selloff all played roles. But the underlying problem is that Washington is borrowing enormous sums at increasingly expensive rates. Net interest costs reached $963 billion in just the first 10 months of this fiscal year, roughly what the government spent on Medicare over the same period — and more than it spent on the Pentagon. Higher rates cost taxpayers more.
Bessent understands this better than most.
At the Economic Club of Dallas in February, Bessent said preserving the “strength, liquidity, and credibility” of the Treasury market is central to American economic security and “is not something that can be taken for granted.”
In February, Bessent said preserving the “strength, liquidity, and credibility” of the Treasury market is central to American economic security and “is not something that can be taken for granted.” He was right.
He was right. And credibility is built on predictability.
I spent 3 1/2 years in the Obama Treasury Department, where predictability was taken seriously. The quarterly refunding announcement — the regular ritual through which Treasury tells the world weeks in advance how it plans to finance the government — is boring by design. That commitment to predictability extended all the way down to how we dealt with the press: We typically gave Treasury reporters 30 minutes under embargo before press announcements so they could understand the details and report them accurately. Markets can absorb bad news. What they hate is surprise.
But that’s what Wednesday’s announcement was.
Two weeks earlier, Treasury had laid out its buyback plans as part of the regular quarterly refunding. Then, on Wednesday, it changed those plans, doubling the size of some of the planned purchases. Thomas Simons, chief U.S. economist at Jefferies, told Reuters that the surprise announcement upended Treasury’s tradition of consistent communication about “regular and predictable” debt issuance and felt “shot from the hip.”
Predictability is important in matters beyond bond auctions. An erratic tariff regime makes it harder for businesses to plan and investors to know what comes next. Presidential attacks on Federal Reserve independence weaken confidence that the Fed will keep inflation under control. So does erosion of the rule of law: When a president uses government power to reward allies and punish adversaries, he creates another risk investors must account for.
To his credit, Bessent has tried to serve as the reassuring face of this administration: the sophisticated market veteran standing behind a president who often treats economic policy and government power as instruments of political power.
The old Bessent would have called this administration’s bluff.
The United States possesses enormous advantages Britain did not have in 1992. The U.S. dollar is the world’s reserve currency, creating steady global demand for dollars and American debt. Our capital markets are the most liquid on Earth, meaning investors can move billions without breaking anything. And when trouble hits anywhere in the world, money typically runs toward Treasurys, not away from them.
Britain did not have that combination of advantages when markets turned on the pound in 1992.
Bessent has tried to serve as the reassuring face of this administration: the sophisticated market veteran standing behind a president who often treats economic policy and government power as instruments of political power.
Those advantages are real. They are why America is not Britain circa 1992.
Bessent, of all people, should know better than to take those advantages for granted.
The fiction is not that a reckoning is coming tomorrow. The fiction is the assumption that the country can indefinitely run enormous deficits, pile trillions onto its debt, inject uncertainty into institutions investors rely on — and still expect the world to lend to us on favorable terms.
Bessent helped make a fortune 34 years ago because he recognized that governments cannot talk markets out of arithmetic forever.
Today he is counting on the world’s faith in America to last longer than the country’s fiscal discipline.
The post The old Scott Bessent would be calling Treasury Secretary Scott Bessent’s bluff appeared first on MS NOW.
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