By Desmond Lachman*<\/p>\n
Where you stand on an issue, the late US bureaucrat Rufus E. Miles, Jr., observed in 1948, depends on where you sit. Scott Bessent, the former hedge-fund operator now serving as US President Donald Trump\u2019s Treasury Secretary, personifies this dictum.<\/p>\n
As an investor, Bessent displayed clear-eyed realism and a knack for capitalising on a country\u2019s economic imbalances to reap big returns. In 1992, for example, he famously helped\u00a0George Soros<\/a>\u00a0make a killing by exploiting the Bank of England\u2019s hopeless defense of an overvalued pound sterling. But as Treasury Secretary, Bessent is supporting a grossly irresponsible budget and foreign policy, which is putting the United States on a path to economic ruin.<\/p>\n At this point, it is not news that the One Big Beautiful Bill that Trump signed into law last summer \u2013 of which Bessent was a leading architect \u2013 represents a fiscal catastrophe. The Congressional Budget Office\u00a0estimates<\/a>\u00a0that the legislation, which includes major unfunded tax cuts, will add $3.4 trillion to the budget deficit over the next decade. According to the International Monetary Fund, the US budget deficit is now\u00a0on track<\/a>\u00a0to exceed 6% of GDP for the foreseeable future, driving the public debt to 143% of GDP by 2030 \u2013 about the level seen in\u00a0Greece<\/a>\u00a0and\u00a0Italy<\/a>\u00a0when their sovereign-debt crises erupted in 2010-11.<\/p>\n But Bessent has continued to choose loyalty to Trump\u2019s reckless whims over any semblance of fiscal responsibility. He has voiced no opposition to Trump\u2019s proposal to increase the defense budget by $500 billion over the next two years. Nor has he resisted Trump\u2019s\u00a0plan<\/a>\u00a0to issue $2,000 tariff \u201cdividend\u201d checks to most American households. Together, these proposals risk increasing the budget deficit \u2013 already running at around $2 trillion annually \u2013 to a level that would be extremely difficult to finance without stoking inflation.<\/p>\n Trump\u2019s attacks on the Federal Reserve\u2019s independence are compounding fears that the US will try to inflate away its debts. Bessent is well aware of this. But, while he may have sought to discourage Trump from trying to fire Fed Chair Jerome Powell, he has not publicly resisted Trump\u2019s other assaults on the central bank, including his effort to fire Fed Governor\u00a0Lisa Cook<\/a>. And Bessent has not given any indication that he will push back against Trump\u2019s appointment of a pliable successor to Powell, whose term expires in May.<\/p>\n But perhaps Bessent\u2019s most egregious lapse relates to America\u2019s dependence on the kindness of strangers to finance its gaping deficits. Foreign investors own some\u00a0$8.5 trillion worth<\/a>\u00a0of US Treasuries \u2013 about 30% of the $30 trillion outstanding. Of that total,\u00a0$1.7<\/a>\u00a0trillion is held by Europeans, the longtime allies whom Trump appears committed to alienating, not least with his efforts to annex Greenland, a semi-autonomous territory of Denmark.<\/p>\n Just as Bessent showed no resistance last year to Trump\u2019s erratic tariff policy, which has sown market uncertainty and hurt America\u2019s traditional allies more than its foes, he has not challenged Trump\u2019s threats to impose new tariffs on European Union countries that oppose his Greenland grab. \u201cSit back, take a deep breath, and let things play out,\u201d he\u00a0told<\/a>\u00a0European leaders at the World Economic Forum in Davos. \u201cDo not retaliate.\u201d<\/p>\n Bessent has also downplayed the risk that Trump\u2019s aggressive posturing might trigger a selloff of US bonds by European investors \u2013 a risk that is compounded by the Trump administration\u2019s weaponisation of financial policy against Russia and Iran. When it was revealed that the Danish pension fund AkademikerPension would sell off its US Treasury holdings, worth about $100 million, by the end of this month, Bessent derisively\u00a0said<\/a>, \u201cDenmark\u2019s investment in the US Treasury bonds, like Denmark itself, is irrelevant.\u201d<\/p>\n Markets are not convinced. On Tuesday, the Dow, S&P, and Nasdaq all had their\u00a0worst days<\/a>\u00a0since October 10, when Trump threatened to raise tariffs on China. Meanwhile, the dollar index fell 0.8%, and gold prices reached\u00a0record highs<\/a>.<\/p>\n While news of a \u201cframework\u201d deal on Greenland between Trump and NATO Secretary-General Mark Rutte has sparked\u00a0something of a rally<\/a>, these trends have been gaining steam for a while. Over the past year, the dollar has lost\u00a010% of its value<\/a>, despite higher import tariffs and the maintenance of a significant short-term interest-rate differential with other major economies, and gold prices have climbed 70%.<\/p>\n Another key indicator of declining faith in the US is the all-important 10-year US Treasury yield, which has risen 50 basis points since September 2024, even as the Fed has cut its policy rate by 175 basis points (which would typically lead to lower long-term interest rates). Ten-year yields are now\u00a0approaching<\/a>\u00a04.3%, with the 30-year Treasury yield at 4.92%.<\/p>\n During his first presidency, Trump was prevented from acting on his worst impulses. During his second presidency, the adults seem to have left the room \u2013 and investors are paying attention. Rather than continuing to back Trump\u2019s reckless policies, Bessent should be highlighting the danger of undermining foreign investors\u2019 confidence in the US. Unless Trump\u2019s economic and geopolitical excesses are reined in soon, the US \u2013 and the rest of the world \u2013 will pay a high price.<\/p>\n Desmond Lachman, a senior fellow at the American Enterprise Institute, is a former deputy director of the International Monetary Fund\u2019s Policy Development and Review Department and a former chief emerging-market economic strategist at Salomon Smith Barney. Copyright: Project Syndicate,<\/a> 2026.\u00a0It is here with permission.<\/p>\n","protected":false},"excerpt":{"rendered":"By Desmond Lachman* Where you stand on an issue, the late US bureaucrat Rufus E. 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