Treasury Secretary nominee Scott Bessent warned that a crisis scenario could be realized in the United States economic system, which would become a situation with painful consequences for the middle and working-class people.
Mr. Bessent noted that the materialization of the mentioned negative configuration of economic reality can be avoided. According to him, in this case, it is necessary to extend the Republican tax cuts of 2017 after their expiration date at the end of the current year.
Scott Bessent stated that the risk of crisis is now the most important economic issue, noting that this is a challenge that stipulates a pass or fail. He made the corresponding statement at his Senate Finance Committee confirmation hearing last Thursday, January 16.
Answering numerous questions during the hour-long session, Mr. Bessent stated that the federal government would not going to default on debts under his watch and that he respected the Federal Reserve’s independence regarding monetary policy.
Scott Bessent also criticized China negatively for the fact that this Asian country is attempting to export its way out of a deep domestic economic slump. In his opinion, a recession scenario is currently underway in the Chinese economic system, which is the second largest in the world. He also admitted the possibility that the time has come when it is appropriate to say that Beijing is facing a depression in the economy. This statement was made as an assumption rather than a verbal fixation of fact materialized in the plane of objective reality. As part of his further bearish comments, Scott Bessent described the world’s second-largest economy as the most imbalanced. In the relevant context, he noted that the military is a priority for the Asian country’s economic system. Scott Bessent also stated that China is striving to export cheap goods to other countries of the world to keep gross domestic product (GDP) growth afloat.
It is worth noting that the mentioned comments were made shortly after the official information was published that the Asian country’s trade surplus had reached a record high. The corresponding result has become an objective economic fact as a result of the impact of such a factor as strong exports. In 2024, the Asian country’s trade surplus was recorded at the $992 billion mark. This indicator increased by 21% year-on-year.
Commenting on the previously agreed trade deal with China, Scott Bessent said that Beijing has not done good on its Ag purchases. He also noted his intention to push the Asian country to resume those purchases and maybe even pursue a make-up provision.
In the context of his comments on taxes, Scott Bessent drew an immediate contrast with outgoing US Treasury Secretary Janet Yellen, who this week said that a policy including a full extension of the 2017 cuts enacted during Donald Trump’s first presidential term could undermine the strength of the United States, from the stability of the treasury bond market to the value of the dollar, and provoke a debt crisis in the future.
Mr. Bessent underlined that if the mentioned tax cuts are not fixed, resumed, and extended, Washington will face an economic catastrophe. He stated that a similar situation, as it always happens during financial instability, will fall for middle-class people.
In his prepared remarks, Scott Bessent underlined the importance of addressing the United States budget deficit. In the relevant context, he noted that the US should work to put its financial system in order by adjusting internal discretionary expenses. According to him, the mentioned category’s expenses have increased by an astounding 40% over the past four years. It is worth clarifying that discretionary expenses are expenses that are not related to benefits, including social security and medical care.
Scott Bessent drew attention to the fact that popular social programs for the elderly in the United States will not end up on the chopping board. He emphasized that Donald Trump has stated that Social Security and Medicare will not be affected.
Scott Bessent noted that one of the tragedies of the sharply increased budget deficit is that, within the framework of the current situation, it is necessary to restore order in a short time. At the same time, he did not specify which segments of the expense structure, in his opinion, should face cutting. Scott Bessent also declined to make any comments in the relevant context regarding specific programs. For example, he did not give an unambiguous and clear answer to the question of whether he would recommend cutting Medicaid, the federal healthcare program for low-income families. Scott Bessent stated that to do the budget is a matter for Congress. It was also noted that he is a proponent of state empowerment and believes that this will mean an increase for some regions and a decrease for some.
Scott Bessent refused to endorse Democratic Senator Elizabeth Warren’s call to eliminate the federal debt limit. According to him, if Donald Trump wants to get rid of the mentioned limit, he would then work with him and Elizabeth Warren on that idea. Scott Bessent stated that the United States is not going to default on its debt if he is confirmed.
The debt ceiling kicked back in on January 2. The Treasury is expected to begin taking measures in the coming days to avoid breaching it.
Scott Bessent stated that he would like to conduct a survey of market participants on debt obligations, hinting at his willingness to discuss with them any changes in the Treasury’s issuance strategy. The next quarterly update on what types of securities and in what quantity to sell comes on February 5th.
When asked about the potential inflationary impact of Donald Trump’s economic policy plans, Scott Bessent said that, in his opinion, the new administration’s policies would bring inflation closer to the Fed’s target of 2%. Also, in the relevant context, Mr. Bessent noted that he does not reckon that any US President-elect policy would provoke an acceleration in price growth, despite the opposite estimates of economists. It is worth mentioning that many economic experts warn that the implementation of Donald Trump’s intention to raise tariffs on imported goods may cause a significant increase in inflation in the United States. Some analysts also argue that Mr. Trump’s plan to mass deport undocumented immigrants in the case of materialization could generate negative economic consequences.
Scott Bessent paid special attention to dispelling rumors that either Donald Trump would attempt to encroach on the independence of the central bank of the United States. Such assumptions began to actively circulate after Mr. Trump announced in the fall that he wanted to have a say in monetary policy.
Scott Bessent noted that, in his opinion, the Federal Open Market Committee should be independent in making monetary policy decisions. It is worth clarifying that the mentioned committee sets interest rates.
If confirmed as Treasury Secretary, Scott Bessent will oversee US policy in various areas, including financial sanctions, currency decisions, and management of the $28 trillion Treasury bond market. It will also be a key United States envoy abroad.
Moreover, Scott Bessent believes that maintaining the dollar as a global reserve asset is critically important for the economic health of the United States and the future of the nation. According to him, Washington should secure supply chains that are vulnerable to strategic competitors. Also in the context of the relevant theme, he stated that the United States should carefully deploy sanctions as part of a whole-of-government approach to meeting national security requirements.
Scott Bessent has been a proponent of realigning US currency policy. At the same time, he stopped short of supporting an overt strategy of depleting the dollar. It is worth mentioning that during his presidential term, Donald Trump negatively criticized the appreciation of the dollar. At that time, he argued that the corresponding dynamic was causing harm to US manufacturers. In the mentioned period, Donald Trump also considered the possibility of government intervention to regulate the dollar value.
Recently, the United States has faced what can be called sanctions fatigue. It is noteworthy that the corresponding sentiments are typical both for Washington’s allies and for world capitals that are geopolitical opponents of the United States. The dollar is the dominant currency in the world and continues to maintain its corresponding status, which is not only a theoretical formulation but a fact confirmed by the processes taking place in the plane of practical actions performed in the space of objective reality. At the same time, some states are seeking to challenge the dominance of the US currency. For example, a group of countries united within the framework of BRICS has the corresponding intentions. It is worth noting that so far the relevant plans exist mainly in the format of statements at the level of rhetoric of the participants of the mentioned group of countries and have not been implemented in the space of practical actions as a kind of factor generating significant or sensitive consequences for the global economic system. At the same time, for Donald Trump, maintaining the dominant position of the dollar is a very important issue. Efforts to strengthen the mentioned currency have formed one of the points of Mr. Trump’s economic agenda.
Scott Bessent’s remarks also noted that Donald Trump became the first president in modern times to recognize the need to change Washington’s trade policy and stand up for American workers. In this context, he underlined that priority should be given to productive investments that contribute to economic growth, rather than wasteful spending that drives inflation.
According to media reports, Scott Bessent sees the challenges ahead of him through the prism of optimism. His plan to boost the economy is not some kind of numerology-based concept but was formed with close attention to the number 3. Mr. Bessent intends to accelerate economic growth to 3% by implementing measures such as deregulation and tax lowering. Also, one of his goals is to cut the budget deficit to 3% of the GDP of the United States. Another component of Scott Bessent’s plan is to increase US energy production by the equivalent of 3 million barrels a day.
The mentioned goals are adequate as an understanding of the challenges that the current configuration of economic reality in the United States generates. At the same time, in this case, achieving a result most likely cannot be a path that can be quickly traversed by relying on a limited number of actions. Currently, the budget deficit of the United States is approximately 7% of the country’s GDP. This indicator is objectively dangerously high. At the same time, it is unlikely that borrowing can be reduced by more than half as a share of output, even with tax cuts. This requires a pace of economic growth that is very poorly aligned with real opportunities. Also, in this case, it can not do without large-scale cuts in outlays.
Scott Bessent supports extending the 2017 Tax Cuts and Jobs Act. It is worth noting that the implementation of the relevant potential decision will cost approximately $5 trillion over the next 10 years. Scott Bessent proposes offset cuts in spending and increases in other taxes, as yet unspecified. If Congress provides a partial offset, the budget deficit is likely to continue to grow.
The media drew attention to the transformation of Scott Bessent’s position regarding Donald Trump’s intentions to raise tariffs on imported goods. It is worth noting that this threat concerns not only Washington’s geopolitical opponents, including Beijing but also allies such as Brussels. Nowadays, in the European Union, many perceive the tariff threat as a realistic prospect, and in the context of this assessment of the probabilities of the foreseeable future, they talk about the need to prepare for a trade war. At the same time, in this case are still mentioning potential plans, not already implemented decisions. Scott Bessent initially argued that the tariff threat should be used as a kind of argument when negotiating with other countries. In the context of this position, it was noted that appropriate measures should not be perceived as something that, by the very fact of its existence, can bring benefits. Shortly before Donald Trump chose him for Treasury, Scott Bessent wrote an article containing a different assessment of tariff increases. In this case, he argued that the mentioned measures could play a role in raising revenue.
The media notes that the trade tariffs that were imposed during Donald Trump’s first presidential term had negative consequences, including increased costs for consumers and businesses, and costly retaliatory actions, but at the same time did not generate anything that would contribute to the revival of domestic manufacturing. However, so far it is still impossible to unequivocally answer the question of whether the new tariffs will be a repeat of past experience. It is also unknown to what extent the relevant intentions will be implemented.
Currently, the United States economy is facing a kind of symbolic wall in the form of the coming future, which, unlike brick or concrete walls, will inevitably and in any case be overcome over time, regardless of how people feel about it. It will soon become known what kind of landscape the US will see after the mentioned symbolic wall is destroyed by the movement of history forward.
As we have reported earlier, US Consumer Prices Increase Slightly Above Expectations.
