US Treasury Secretary Scott Bessent’s strategy to stretch out the survival of the bankrupt financial system is instead shortening its chances of survival. Through his “stablecoin” scheme, Bessent has managed to create a very large demand for short-term Treasury bills. Privately held marketable US debt maturing within one year has doubled since 2020, from over $4 trillion to over $8 trillion, according to the US Treasury Bulletin. This forces the Treasury to roll over debt at an increasing rate, which is unsustainable in the long, medium, and even short term.
This is the debt trap which many developing countries have run into, when they scrambled to shorten the maturity of their debt to try to pay a lower rate, thus creating a shock wave of maturities coming all at once – and often enough, with ensuing defaults and bankruptcies..
Consistent with the Treasury, the Fed under the new chairman Kevin Warsh, kept interest rates unchanged at the meeting of the Federal Open Market Committee this week, despite inflation rising to 4.2% in May. This is higher than the Eurozone inflation rate of 3.2%, which was enough to prompt the ECB to increase rates by a quarter point a week ago.
As we have noted, given the unpayable speculative bubble, monetary tightening and monetary easing are two faces of the same “remedy” that will make the illness worse, by producing either immediate bankruptcies or greater inflation leading to bigger bankruptcies down the line. The cancer, i.e. Wall Street and the City of London’s multi-quadrillion financial bubble, must be extirpated at its roots through a Glass- Steagall type of banking reform.
