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Trump Puts US Treasuries at Risk [1]
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Date: 2025-02-11
Traditionally, US treasuries — bills: short-term; notes: medium-term (2-10 years); bonds: long-term (20-30 years) — have been considered one of the safest investments around. In 2021, an investment website wrote about The Safety of U.S. Treasuries and Government Bonds:
U.S. Treasuries are generally considered one of the safest—if not the safest—investments in the global financial markets.
Lots of countries agree. The chart above is from 2018, and as of mid-2024, foreign countries overall were holding around 8 trillion dollars of US treasuries. (While the chart is a little out of date, it is useful for a reason I’ll explain below.)
Musk and his teenage henchmen are putting the Treasury computer systems at risk, to the point where the chairman of the Federal Reserve had to issue this sort-of reassurance this morning: Fed's Powell says 'I believe' Treasury payments system is safe. But in an offhand comment made on his way to the Super Bowl last Sunday that is now getting attention (Heather Cox Richardson), the “stable financial genius” unleashed yet another threat to the world economy:
Trump indicates that he is willing to undermine the credit of the United States. Yesterday, on Air Force One, he told reporters that the members of the administration trying to find wasteful spending have suggested that they have found fraud in Treasury bonds and that the United States might “have less debt than we thought.”
The Treasury department tried to play down the story, saying Trump was talking about payments, not debt:
President Donald Trump’s weekend comments regarding irregularities in Treasury payments were a reference to billionaire Elon Musk’s claims that the government had made improper transfers to contractors and grant recipients — not an expression of concern about payments to bondholders, the president’s top economic adviser said Monday.
But that’s not what Trump said: Trump suggests US may have less debt than thought because of fraud.
Speaking to reporters aboard Air Force One, Trump suggested that the administration and Elon Musk's efficiency team found irregularities at the Treasury Department that could mean the U.S. government's more than $36 trillion debt isn't that high. "We're even looking at Treasuries," Trump said. "There could be a problem – you've been reading about that, with Treasuries and that could be an interesting problem." "It could be that a lot of those things don't count. In other words, that some of that stuff that we're finding is very fraudulent, therefore maybe we have less debt than we thought," he added.
Trump doesn’t really understand finance, much less global finance, but he does understand optics. During his first term, Donald Trump Promised to Eliminate the Deficit in 8 Years. (He had increased it 68% by 2019, according to that Newsweek story.) He also tried (and so far has failed) to eliminate the debt ceiling even before resuming office, as that could interfere with his plans to spend us further into a hole. But if he can falsely claim that the debt isn’t as big as it really is by reneging on our Treasury debts, he gets himself more space before he hits the ceiling again.
The Financial Times (FT) called Trump’s view of the treasury obligations “interesting” — Trump’s ‘interesting problem’ with Treasuries — and tried to downplay his blathering:
FT thinks this is so wild that it’s just another wildly off-the-cuff remark that the markets will shortly ignore. But if he really means it, or even just gets taken seriously, the repercussions will be so immediate and devastating that . . . well, the FT doesn’t even want to think about it. [This is a paraphrase, not a quote, because of FT copyright restrictions.]
The British do have a fascinating talent for understatement, but this is outright denial of what they have to realize is going on. As can be seen in the chart above, Russia may have predicted this and possibly even intended it; a report from Statista — Value of U.S. Treasury securities held by residents of Russia from January 2020 to April 2024 — shows that
The value of U.S. Treasury securities held by residents of Russia amounted to 46 million U.S. dollars in April 2024, marking a stark contrast to the 10.51 billion U.S. dollars held in January 2020.
That’s a drop of over 95%. A lot of that may be attributable to sanctions placed on Russia, but it’s still, as FT would say, interesting.
Even more interesting, perhaps, is that China held close to 800 billion dollars of our debt as of Nov. 2024. There is a general drop in Chinese holdings, which haven’t been over 1 trillion dollars since April 2022, but it’s still a significant holding — 4% of its GDP for 2024 ($18 trillion). A Trump decision to unilaterally declare China’s debt holdings to be “irregular” and refuse to honor them would send a shock through China’s economy, perhaps not as much as Trump would like, but then reality has never held much of his attention. Nor is he going to worry about the shock it would send around the world that the US does not honor its debts; Trump’s whole life history has been about stiffing his creditors.
Yes, the XIV Amendment says
The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.
Trump has already explicitly announced he intends to disregard section 1 of that amendment (birthright citizenship). Why should we expect him to feel any differently about section 4?
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