US Treasury Secretary Scott Bessent is increasingly seen as a danger to the global economy due to his market interventions. Initially appointed in 2024 by President-elect Donald Trump for his financial background, Bessent's reputation has shifted dramatically, with even his former mentor Stanley Druckenmiller criticizing his handling of the US Treasury market.
Bessent's strategy involves supporting the Japanese yen and directly intervening in the Treasury market through large-scale buybacks, retiring long-term securities and increasing short-term issuance. This approach is intended to suppress long-term yields but has proven short-lived and potentially counterproductive. Critics argue that Bessent is fighting the wrong battle by focusing on yields instead of addressing the substantial US fiscal deficit, projected at 6% of GDP in 2026, and public debt exceeding 120% of GDP, especially with inflation running at 3.5% to 4% against the Federal Reserve's 2% target.
The Treasury's actions, by shortening the financial duration of public debt, are equivalent to quantitative monetary easing, directly conflicting with the Federal Reserve's likely need to raise interest rates due to persistent inflation. This places Bessent on a collision course with Fed Chair Kevin Warsh. The situation echoes the failed "Operation Twist" of the 1960s, which also aimed to reduce long-term rates but aggravated imbalances and contributed to future inflation and dollar depreciation. The current interventions, conducted by the Treasury rather than the central bank, carry even greater risks, potentially destabilizing not only the US but also Europe, where rising US interest rates are exacerbating existing fiscal weaknesses.
