During his Senate confirmation hearing on Thursday, Scott Bessent, President Donald Trump’s pick for Treasury Secretary, called the national debt “a disaster” and pointed to the country’s budget deficit, now more than 6% of GDP, as something rarely seen outside of wartime or a major economic crisis.
Scott warned senators that the Treasury’s borrowing power, once used to rescue the country during events like the Civil War, World War II, and the COVID-19 pandemic, is now in jeopardy. “What we currently have would make it hard to do the same again,” Scott said.
His concerns come as outgoing Treasury Secretary Janet Yellen shared the same. Earlier this month at a New York event, she said the country’s fiscal trajectory is “simply not sustainable” and urged the incoming administration to treat it as a top priority.
The similarity between their warnings stop there though, as Scott has already laid out a vastly different roadmap for tackling the issue.
Tax cuts at the center of the debate
Scott told senators that extending the 2017 Republican tax cuts, which are set to expire at the end of the year, is his top economic priority.
According to him, failing to extend the cuts could deal a massive blow to the economy, potentially triggering financial instability and even a “sudden stop” in economic activity.
Janet, on the other hand, warned that a full extension of the 2017 tax cuts could weaken the country in the long term. She argued that such policies could erode the resilience of the Treasury market, harm the value of the dollar, and even start a full-blown debt crisis.
The tax cuts, which lowered rates for individuals and corporations, have become a hot-button issue. Democratic senators grilled Scott on why wealthy Americans, including billionaires, should continue to enjoy lower tax rates.
Scott fired back with familiar Republican arguments: lower taxes stimulate economic activity, and the wealthy already contribute a disproportionate share of federal revenues. “The United States does not have a revenue problem,” he declared. “It has a spending problem.”
He cited discretionary spending, which has soared 40% over the past four years, as the real culprit. As a solution to that, President Trump and his new ‘best buddy’ Elon Musk created the Department of Government Efficiency (D.O.G.E). As Cryptopolitan reported, Scott told the Senators that D.O.G.E was “absolutely essential.”
Treasury market and economic signals
Beyond taxes and deficits, the financial markets are sending their own signals. On Thursday, Treasury yields plunged. The 10-year yield dropped 13 basis points, and the 2-year yield fell 10 basis points. Just days earlier, the benchmark 10-year yield had hit its highest level in 14 months.
The volatility followed the release of December’s consumer price index. The data showed that core inflation, which excludes food and energy prices, slowed to 3.2% on an annual basis, slightly below the 3.3% economists had predicted.
Core inflation rose just 0.2% month-over-month, again under expectations. Headline inflation, including all goods, was up 0.4% monthly and 2.9% annually. In an interview with CNBC, Federal Reserve Governor Christopher Waller hinted that interest rate cuts might be on the horizon if inflation continues to cool. “If the data keeps coming in like this, we could see rate cuts sooner than the market is expecting,” he said.
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