Ex-U.S. Treasury Secretary Henry Paulson issued a stark warning about the U.S. Treasury market. He said that policymakers should have a contingency plan to stabilize the bond market. A sudden drop in demand for the country’s bonds, like the 7-10 year (IEF) or 20+ year bond (TLT), would cause disruptions.
Paulson said that risks are more correlated to both the federal debt market and the government’s financing needs. Markets ignored Paulson’s warnings: IEF and TLT shares barely moved.
Spending Problem
The U.S. breached $30 trillion in debt in February 2022. It reached $39 trillion in March. The recent $2 trillion increase happened amid the U.S. attack against Iran. At each phase of the increase, stock markets kept rising. Last week, Nasdaq (QQQ), a forward indicator of market sentiment, closed at an all-time high.
The U.S. dollar (DXY) (UUP) fell by 2.29% from its 52-week high. It trades at March’s levels, barely reacting to the U.S. debt levels.
Tax Cuts
While the wealthy will enjoy tax cuts, U.S. consumers will get one, too. Although the lower tax revenue will raise the rate at which debt grows, it also helps the economy. Bank stocks like BofA (BAC) and Wells Fargo (WFC) rebounded. That might indicate that markets expect the economy to continue its strength.
A strong U.S. consumer economy should minimize the risk of any debt crisis anytime soon.
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