Bessent’s $40 Trillion Shrug: Why the Treasury’s Debt Gamble Could Backfire Badly

(SeaPRwire) –

By: Raymond Vance

Treasury Secretary Scott Bessent wants Americans and markets to brush off the $40 trillion national debt. He told CNBC there’s nothing magic about the number. Growth, he says, will get the country out of it. A day before his interview, the Treasury announced doubling long-dated bond buybacks. The operations will go from $2B to at least $4B per issue. The goal is to fix thin liquidity in a market with a buyers’ strike since late June.

Bessent claims the deficit is smaller than headlines suggest. He points to 2025’s fiscal consolidation, with a deficit of 5.7% of GDP. One-time tariff refunds inflated the number, he says. Those won’t happen again. He also argues immediate expensing of factories isn’t spending—it’s investment in the future. But Treasury Borrowing Advisory Committee (TBAC) minutes tell a different story. They warn of a $1.45 trillion funding shortfall in 2027-28. Debt service now costs over $1 trillion a year—more than national defense.

Bessent has leaned hard on short-term Treasury bills to fund the $2 trillion annual deficit. He uses the 3.8% three-month yield instead of the 5%+ 30-year rate. This cuts current borrowing costs but leaves the government exposed to rate hikes, TBAC says. Notably, his predecessor Janet Yellen used the same tactic. Bessent criticized her for it in 2024. Jon Hilsenrath, a Fed watcher, sees a collision coming. The Treasury’s bill-heavy strategy clashes with the Fed’s balance sheet shrink under Chair Kevin Warsh.

The Treasury’s moves are a short-term fix. They don’t address the core problem of rising debt. If rates go up or the Fed forces a shift to long bonds, debt service costs will surge. This could shake investor trust. It may even lead to a downgrade of the US credit rating.

Author bio: Raymond Vance, a senior macro-economist and consultant to central banking policy research working groups.